Pursuant to federal securities laws, any sale of a security must be registered or meet an exemption. In the Federal securities laws, the laws contain several exemptions. Regulation D is one such exemption. In this blog, you will learn the difference between a registered and an unregistered offering.
What is a Registered Offering?
A registered offering, also referred to as a registered security, is one whose issuer has complied with the Securities and Exchange Commission (the “SEC”) requirements. Ownership of these securities is registered with the issuing company or an agent. With a registered public offering, the SEC requires your company to file an SEC registration statement that includes information about the offering and the financial condition of the company.
What is an Unregistered Offering?
Under the securities laws, a company may not sell an offering unless it is registered with the SEC or an exemption. If an offering is not registered, it is referred to as a private placement or an “unregistered offering.” Unregistered offerings may be issued through Regulation D offerings, employee stock benefit programs, or in exchange for providing funding for a startup.
An unregistered offering has fewer protections and can carry certain risks. Accordingly, an unregistered offering may only be sold to those who are “accredited investors.”
Regulation D is a regulation that provides for various exemptions and allows companies to issue securities without the need to register them. Since funding can often be obtained faster and at a lower cost with Regulation D, Regulation D or Reg D is typically used by smaller and private companies to raise money. While the regulation allows for the sale of unregistered securities, other state and federal regulations that must be satisfied.
Understanding the Requirements of Regulation D
Although companies that comply with the requirements of Regulation D do not have to register their offering with the Securities and Exchange Commission, those companies must file Form D — regardless of how many investors are involved. Form D must be submitted electronically following the issuance of the first securities. This form requires the names and addresses of the company’s promoters, executives, and directors; critical details concerning the offering; and disclosure of any bad actor events within a certain time frame.
Under the Reg D exemptions, Rule 504 allows some companies to sell an unregistered offering when they offer and sell up to $5,000,000 of securities within 12 months. Rule 506 provides two exemptions to companies when they offer unregistered securities — the “safe harbor” of Rule 506(b) where an issuer can raise an unlimited amount of money and can sell securities to an unlimited number of accredited investors. An offering under Rule 506(b) requires no general solicitation or advertising to market the securities. Under Rule 506(c), a company can solicit and advertise an unregistered offering and remain in compliance if certain criteria are met.
Unregistered shares sold under a Reg D offering may be sold into the market if the following criteria are satisfied:
- The unregistered shares are held for the prescribed period
- There is adequate public information available about the security’s past performance
- The sale is less than 1% of shares outstanding and less than 1% of the average trading volume in the previous four weeks
- All normal trading conditions are met
- Sales of more than 5,000 shares or worth more than $50,000 are preregistered with the SEC
Contact an Experienced New York Securities Attorney
Whether you’re considering issuing a registered or unregistered offering, it’s crucial to have an experienced SEC attorney by your side to guide you through the process. Brinen & Associates provides dedicated legal services for securities matters in a wide range of industries and works with clients to ensure SEC compliance. Call (212) 330-8151 or send us a message to schedule a consultation.