Federal Private Placement Exemption Under Regulation D The Regulation D exemptions authorize the offer and sale of securities through certain private placement transactions. There are restrictions on the number and amount of sales, and on advertising or solicitation, and resale. Notice of Regulation D offerings must be filed with the Securities and Exchange Commission, but the full registration and disclosure requirements of a public offering need not be met. Regulation D includes four exemptions: • Rule 504 provides an exemption for offerings up to $10 million during the twelve months before the start of and until the completion of the offering. Purchasers need not meet any suitability test and there is no limit on the number of purchasers to whom the offeror can sell. No general solicitation or advertising. • Rule 505 provides an exemption for offerings up to $5 million during the twelve months before the start of and until the completion of the offering. Sales may be made to an unlimited number of accredited investors (defined below), but may not be made to more than 35 non- accredited investors. • Rule 506( b ) permits a company to sell an unlimited dollar amount of securities. Sales may be made to an unlimited number of accredited investors, but may not be made to more than 35 non-accredited investors, each of whom must be a “sophisticated investor.” No general solicitation or advertising permitted. "Testing the Waters'" activities permitted. • Rule 506(c) added by the Jobs Act of 2012 allows for general solicitation and advertising in Rule 506 private placements where all purchasers are accredited investors and the issuer has taken reasonable steps to verify that the purchasers are accredited investors. The term “accredited investor” as applied to natural persons means any individual natural person whose net worth (alone or jointly with spouse) exceeds $1 million not including the value of the person’s primary residence; or, a natural person whose income exceeded $200,000 ($300,000 with spouse) in each of the two most recent years with a reasonable expectation of the same level of income in the current year. A rule adopted by the Securities and Exchange Commission on August 26, 2020, adds to that definition individuals holding Series 7, Series 65, and Series 82 securities licenses. The Intrastate Exemption The intrastate exemption applies to securities offerings which are confined to a single state and which are purely local in nature. The scope of the intrastate exemption is extremely narrow, and even though the offering is exempt from federal regulation, it is subject to state law requirements. To qualify for the intrastate exemption, under Rule 147, the securities must be part of an issue that is offered and sold only to residents of a single state. The issuer must be a resident of the same state and must have its principal place of business there. Under Rule 147A the issuer need not be organized in that state. If the issuer is a corporation it also must be incorporated in that state. There are restrictions on subsequent sales of the securities, and the issuer must take certain precautions against interstate offers and sales.
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