Form D is a notice of exemption from the requirement, under the Securities Act of 1933, that any issuance of securities must be registered with the Securities and Exchange Commission (SEC). The Form was created with the adoption of Regulation D, which states that funds or companies that meet the requirements outlined under Rule 504 or Rule 506 within Regulation D, may sell securities without having to fulfill the same compliance obligations as issuers who register with the SEC. This allows issuers to raise capital faster and at a lower cost than they would if they were to conduct a public offering, which must be registered with the SEC and meet additional regulatory requirements.
This may sound similar to our previous blog on Form C, which allows filers to raise investment through crowdfunding and also has fewer compliance obligations than registered offerings. While Form C is for filers looking to generate relatively small amounts of investment from a larger and more diverse pool of investors, Form D tends to be for filers aiming to generate larger investments from more advanced investors. Despite some similarities, there are a few key differences between the two forms:
The idea behind these differences is that more advanced investors will have the resources to do their own research and the leverage to ask for any information they might find necessary before making an investment decision. Since the investors have more power in the negotiations, the SEC does not need to impose restrictions.
The benefits and restrictions of Form D offerings are somewhere in-between those of SEC registered offerings and Form C offerings. Form D filers face fewer compliance obligations than registered offerings and can raise more money than Form C offerings at the expense of limiting the pool of potential investors.
As mentioned above, the restrictions and obligations that Form D filers face differ depending on whether the issuer is relying on Rule 504 or Rule 506 (there are two distinct exemptions within Rule 506; Rule 506(b) and Rule 506(c)). These differences are outlined in the table below:
Rule 504 |
Rule 506(b) |
Rule 506(c) |
|
Dollar Limit |
$5,000,000 for any 12-month period. |
None. |
None. |
Investor requirements |
Available to accredited and non-accredited investors. |
Available to accredited investors and up to 35 non-accredited investors. Non-accredited investors must be sophisticated and be provided with additional financial information. |
Available to accredited investors only. |
Restrictions on type of company |
Not available for Exchange Act reporting companies or investment companies. |
None. |
None. |
Advertising |
Not allowed. |
Not allowed. |
Permitted only if the issuer has taken reasonable steps to verify that all investors are accredited. |
Blue sky laws (state laws regulating the sale of securities) |
Must comply with blue sky laws. |
Do not need to comply with blue sky laws. |
Do not need to comply with blue sky laws. |
Regardless of which rule the issuer relies on, all securities sold are restricted, meaning that they cannot be re-sold for at least 6 to 12 months after purchase. All issuers must file their Form D within 15 days of the first sale.
Regulation D provides multiple possible avenues for companies to raise investment. If you or your company is interested in a capital raise under Regulation D, reach out to us for any of your SEC compliance needs.