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What is Regulation D?

Written by: Roger Trivelli

Article Overview: Regulation D 504,505,506: Private Placement Memorandums Overview

What is Regulation D?

Most issuances of equity securities must be registered with the Securities and Exchange Commission. Registration documents include detailed disclosure, historical financial statements, and third party audits that take time to assemble. The process requires many hours of assistance by attorneys and accountants, and the SEC review can last from 20 to 60 days. Registration alone can cost a business thousands of dollars even before the offering makes any money.

A private placement, however, is EXEMPT from federal registration. Exemptions have always been available under the Securities Act of 1933 (the Act), but the original exemption provisions (contained in sections 3(b) and 4(2) of the Act) were vague and, therefore, risky for business owners to invoke.

In 1982, the SEC adopted Regulation D, which set forth objectives and quantifiable rules for exemptions from federal registration. Offerings exempt under these rules 504, 505 and 506 have become the most common cost and time saving methods for small and growing businesses to raise capital from private investors.

Essentially, this allows LLC and Corporations of small size to sell shares of stock through a Private Placement Memorandum. For example, someone seeking 1 Million in funding, may place 10% of their company's stocks for sale. Selling 1,000,000 shares of stock at $1.00 each and retaining 9,000,000 shares.

This is very effective in raising funds as it allows for multiple investors, and we highly recommend the use of this document if you are seeking funds fast. Because of the complexities surrounding this documentation, few firms do it, and those that do charge in excess of $1200. We have been creating PPMs for years and will be able to complete the creation of yours as well.

For more information, please visit www.fundingdocuments.com

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