Tag: Regulation D

RegD SEC Reporting Obligations

Posted on by Scarlett Duarte

RegD SEC reporting obligations is a theme that causes a lot of doubts, even concerns, among people who are thinking about raising capital. The compliance details required by Securities and Exchange Commission (SEC) have a lot of particularities, which demands attention of all potential issuers.

Regulation D (Reg D) offerings are exempt from the full SEC registration requirements but still require compliance with certain reporting obligations. The reporting requirements under Regulation D vary depending on the specific exemption used for the offering.

 

RegD SEC Reporting Obligations

In this short guide, we will explain practical details regarding SEC reporting for RegD.

Here’s an overview:

 

Rule 504 Offering (Regulation D, Rule 504):
Companies conducting offerings under Rule 504 are generally exempt from SEC registration requirements. However, there are no specific ongoing reporting requirements mandated by the SEC for Rule 504 offerings.

Rule 505 Offering (Regulation D, Rule 505):
Companies utilizing Rule 505 for their Reg D offerings are allowed to raise up to $5 million within a 12-month period.

While Rule 505 itself doesn’t impose ongoing reporting obligations to the SEC, individual states might have their reporting requirements for Rule 505 offerings.

Rule 506(b) Offering (Regulation D, Rule 506(b)):
Under Rule 506(b), companies can raise an unlimited amount of capital from an unlimited number of accredited investors and up to 35 non-accredited but sophisticated investors.

There are no specific ongoing reporting requirements to the SEC for Rule 506(b) offerings. However, if non-accredited investors are involved, some level of disclosure may be required to satisfy anti-fraud provisions.

Rule 506(c) Offering (Regulation D, Rule 506(c)):
Rule 506(c) allows companies to conduct offerings where they can generally solicit and advertise their offerings to the public but are limited to accepting investments only from accredited investors.

There are no specific ongoing reporting requirements to the SEC for Rule 506(c) offerings.

However, companies might need to file a Form D notice with the SEC within 15 days of the first sale of securities.

Take note!

While Regulation D exemptions typically do not impose explicit ongoing reporting requirements to the SEC, companies that conduct Reg D offerings are subject to anti-fraud provisions and should provide investors with all material information necessary to make an informed investment decision.

Additionally, states may have their reporting requirements for offerings made under Regulation D, so companies should consider state-specific regulations when conducting these offerings.

It’s important for companies utilizing Regulation D exemptions to consult legal and financial professionals to understand the specific reporting obligations, if any, and to ensure compliance with all relevant securities laws and regulations.

Reforms to RegD

Posted on by Oscar Jofre

With Regulation D (RegD) offerings, companies are exempt from registering securities with the SEC. Under RegD, companies can raise capital from accredited investors (and a limited number of nonaccredited investors in some cases) to support the growth of their business. This has become a popular method for private companies to raise capital, and can often be a starting point for larger capital raises under Regulation CF or Regulation A+. This popularity and the minimal disclosure requirements of RegD have prompted SEC Commissioner Caroline A. Crenshaw to propose changes to RegD disclosure requirements in January. Let’s see about these reforms to RegD.

 

Current Regulations Under RegD

 

The objective of RegD was to enable small and medium-sized businesses to seek capital-raising opportunities, without the cost-prohibitive disclosure requirements of a public offering. Under current regulation, companies may make private offerings of securities without having to register with the SEC, provided that they comply with certain disclosure requirements. These include filing Form D (which provides information about a company’s executives and its financial condition) and providing investors with a private placement memorandum outlining the terms of the offering. However, as this method of capital raising has been leveraged by multi-billion-dollar companies for whom it was not originally intended, the SEC is looking to update the disclosure requirements.

 

Commissioner Crenshaw’s Proposed Reforms

 

Commissioner Crenshaw has proposed a two-tiered framework, similar to Regulation A (RegA) which also provides an exemption from SEC registration requirements. Under the proposed reforms, companies offering securities through RegD would be required to provide more disclosure than is currently required, with the burden of disclosure increasing based on company size. Smaller companies (up to a threshold) would only need to provide basic information about their business operations such as management, operational updates, and financial statements. Larger companies (over the threshold) would be required to provide additional, heightened financial disclosures similar to those that are required under an S-1 filing. 

 

This reform could have far-reaching implications for small and medium businesses that wish to access capital markets and would largely depend on where the threshold is set. It remains to be seen whether these proposed reforms will move forward, but it’s clear that Commissioner Crenshaw is interested in modernizing and streamlining the process of raising capital.  

 

Effects of These Changes

 

The SEC’s proposed reforms would require issuers to provide more extensive disclosure and adhere to certain standards that are typically only associated with public offerings. This could potentially be a costly endeavor, as it would involve additional filing fees, legal expenses, and accounting costs.

 

The proposed reforms could also limit the ability of small businesses to access capital through Regulation D, as the costs associated with meeting the new requirements may be too high for some companies. For example, smaller companies may find it difficult to pay for the necessary accounting and legal fees, or they may not be able to generate enough interest from investors due to the higher thresholds that must be met to qualify for RegD. Small start-ups trying to raise only $250,000, these companies may not have the money to prepare the audited financials and Form 1A level disclosures.

The SEC’s proposed reforms of Regulation D are a step in the right direction toward protecting investors and ensuring that issuers adhere to certain standards. However, these reforms could potentially be harmful to small businesses seeking to raise capital through RegD offerings. The SEC needs to consider the potential effects of its proposed reforms and ensure that they are not overly burdensome on companies whose access to capital is already limited.

 

Is Reg D Suitable for My Company?

Posted on by Oscar Jofre

Regulation D (Reg D) is a set of rules established by the U.S. Securities and Exchange Commission (SEC) that allows companies to raise capital without registering their securities for public sale and is related to, but different than other JOBS Act regulations. Reg D also establishes certain disclosure requirements that companies must comply with when selling securities under this type of offering and offers several advantages for companies seeking to raise capital, these include:

 

  • Ability to raise capital from accredited and some nonaccredited investors
  • Reduced disclosure requirements, and faster access to capital
  • No limits on offering sizes

 

However, there are also certain drawbacks associated with Reg D. For example, companies must comply with state regulations that may require disclosure of notices of sale or the names of those who receive compensation in connection with the sale. Additionally, the benefits of Reg D only apply to the issuer of the securities, not to affiliates of the issuer or to any other individuals who may later resell them.

 

What is Reg D?

 

Reg D is a set of rules established by the SEC to help companies raise capital without registering their securities for public sale. The regulations are designed to make it easier for businesses to access capital markets and take advantage of potential investors who were not previously able to invest in private offerings.

 

Under Regulation D, companies are allowed to raise capital without registering their securities with the SEC under rule 506. Under Rules 506(b) and 506(c), companies are not limited to the amount of capital that can be raised. However, offerings under rule 506(b) cannot use any form of general solicitation, which means they need to rely on their networks of accredited investors. In addition, 506(b) offerings can have up to 35 nonaccredited investors.

 

Who Can Benefit from Reg D?

 

Reg D can benefit both companies and investors. Companies can access capital markets without registering their securities for public sale, a great alternative to a cost-intensive IPO. Issuers can also raise the capital they need to grow and expand their business, as well as fund future rounds of fundraising that may be accomplished through a Reg CF or a Reg A+ offering.

 

For investors, Reg D offers the opportunity to invest in companies with potentially higher returns than other investments due to the increased risk associated with such investments. The majority of investors must meet specific criteria (such as having an annual income of over $200,000) to be considered accredited investors.

 

Is Reg D Suitable For My Company?

 

The answer to this question depends on several factors, such as your company’s financial situation and whether you can meet the disclosure requirements under Reg D. Companies that may benefit from a Reg D offering include:

 

  • Start-ups or development-stage companies
  • Growing businesses needing additional capital
  • Companies looking to access capital more quickly than they could through a traditional public offering

 

Reg D can be beneficial for companies, as well as accredited investors who meet specific criteria. While there are potential risks associated with a Reg D offering, it may be suitable for your company if you can meet the disclosure requirements and familiarize yourself with the relevant regulations. Ultimately, it is important to consult a qualified securities lawyer to determine if Reg D is the right option for your company.

 

How Can an Update on RegD Impact Private Markets?

Posted on by Oscar Jofre

Far larger than the initial public offering (IPO) market, Regulation D is incredibly important within the private capital markets, facilitating over $1 trillion in capital every year. Now, the SEC is considering updates to the accredited investor definition, which would have a significant impact on Reg D offerings, the private market, and the economy as a whole.

 

Understanding Regulation D

 

To understand how an update to RegD could impact private markets, it is important to have a brief overview of the regulation. There are two types of Reg D – 506b and 506c. Both offer exemptions from Securities and Exchange Commission (SEC) registration requirements for securities offerings and require investors to be accredited. An accredited investor is an individual who meets certain financial criteria, such as earning $200,000 or more a year or having a net worth of over $1 million. The main difference between 506b and 506c is that 506b does not allow the issuer to solicit generally or advertise the offering to potential investors.

 

Changes on the Horizon

 

The SEC is currently considering updates to RegD, including changes to the definition of an accredited investor. Some changes could include raising the income or net worth thresholds, although it is still somewhat unclear as to what the SEC envisions. Raising these thresholds would mean fewer individuals would qualify as accredited investors and therefore have access to private securities offerings. The impact of these changes could affect different types of investors differently. Still, they will likely have a significant impact on private capital formation and the ability of entrepreneurs to access funding.

 

The update could also impact companies that use Reg D offerings as part of their fundraising strategy. Currently, these companies can access a much larger pool of capital than they would through an IPO or traditional venture capital, as nearly 15 million Americans qualify under the current definition. But if the definition of an accredited investor is narrowed, this could limit access to capital for smaller or startup companies. 

 

What Does This Mean for the Private Market?

 

Even though the SEC says that these changes are to protect investors, net worth and income are not the only way to determine whether an investor is accredited or not. The ability to make an educated investment decision also relies on the education and experience of the investors, which isn’t considered in the definition of an accredited investor. Some organizations, like the Investor Choice Advocate Network, believe that the definition should be updated to reflect non-financial measurements such as the professional certifications required for CPAs, registered investment advisors, financial planners, and other professionals. 

 

Updates could also mean that fewer individuals from underrepresented groups may be able to participate in a Reg D offering. With these groups historically facing obstacles to participating in capital markets, these updates could dramatically reduce investment opportunities for some individuals as well as make it more difficult for companies who are looking to raise capital from underrepresented communities.

 

Of course, it is difficult to say exactly what the impact of updated Reg D would be on private markets when we still do not know what those updates will be. Hopefully, we will have more information soon.

Is Email Still King for Reg A, Reg CF, and Reg D Marketing?

Posted on by Dawson Russell

This article was originally written by KorePartner Dawson Russell of Capital Raise Agency. View the original post here.

 

Email marketing has been around for a while. You might even be surprised to read that email has been around since the ’70s — over 50 years ago!

 

You’d think that as fast as the digital world moves, such a dinosaur of a marketing strategy would be nothing more than a relic or extinct.

But it’s not.

In fact, email marketing is somewhere in the ballpark of 40 times more of an effective marketing strategy than social media marketing, according to a study conducted by McKinsey & Company.

So why is that?

How is email marketing still king when we now have search engine optimization (SEO), social media marketing, mobile marketing, pay-per-click, content marketing, and influencer marketing all at our fingertips?

Here’s are 3 of the main reasons:

1. It’s Highly Customizable

The most crucial and effective way to have success with your email marketing strategy is to implement what’s known as “customer segmentation.” This means you can use customers’ recent and relevant searches & interests to your advantage and generate custom-made emails for them in a way that is MUCH more effective than other approaches. Customer segmentation also allows you to be much more tactful with your email timing, so you can avoid spamming their inboxes.

Even better, you can pivot your customer segmentation strategy quickly by reviewing click rates, bounce rates, and subscribe & unsubscribe rates.

2. It Provides Better Conversion Rates

It doesn’t matter if your focus is on Reg A email marketing, Reg CF email marketing, or Reg D email marketing, it will still have a better conversion rate than any other method.

Email has been traditionally regarded as the most transactional part of a company or business.

Think about it.

You can generate traffic to your business and/or convert a visitor to an investor with just a single click of a link. They can reply directly, sign-up for other newsletters, forward the email to other potential investors, and more.

According to a study done by Statista, over 93% of Americans between the ages of 22-44 used email regularly, and over 90% of Americans between the ages 45-64. Even 84% of people 65+ were regular email users.

3. It’s a Cinch to Automate

Once you get everything written out and running properly, you can launch a highly effective Reg A, Reg CF, or Reg D marketing campaign, with minimal effort compared to other methods.

With the right automation tools to go along with your campaign strategy, you can create and deliver automated emails that are not only relevant to your subscriber list but generate leads and new investors at the same time.

In Conclusion…

Email marketing really is still the best way to reach out to potential investors and remains the king of the digital marketing world. When utilized and implemented properly, it can build leads to potential investors, and strengthen brand trust and loyalty in a way that enables your fund to grow more than you would’ve thought possible.

PS: did you know that adding PS to your email marketing campaigns could increase click-through rates by an extra 2%?

What is the Difference Between the Public and Private Capital Markets?

Posted on by Oscar Jofre

 

The public and private capital markets work differently, but both sectors play essential roles in supporting economic growth. Companies raise funds for long-term growth and acquisitions in the public capital market, usually through debt instruments like bonds or stock, while private companies raise capital through private investments.  This article provides an overview of the differences between the two types of capital markets, including how they function and their role in economic development. 

 

Public Capital Markets

Public capital markets consist of equity and debt markets where buyers and sellers trade with each other daily. Many companies use this type of market to raise new capital or sell their existing stocks. It is typically easier for publicly traded companies to use these markets than private ones because traditionally, a wider pool of investors is available, and shares provide a significant amount of liquidity. Most investors use public markets to invest in companies, which buys them a partial interest in a company. It is also where many companies go when they want to raise new capital to fund their business operations. 

 

Private Capital Markets

Private capital markets are where privately-held companies can sell equity to investors like private equity, venture capital firms, and even individuals. This sale of securities is typically exempt from registration with the SEC and may come in the form of a Reg A, Reg CF, or Reg D offering. Before the JOBS Act, these types of investments were limited to high net-worth individuals and institutional investors. Post JOBS Act, even everyday investors can get a piece of a private company, which may offer a significant return if that company ever goes public through an IPO. Additionally, offerings in the private sector typically cost less to the issuer than an IPO, which makes JOBS Acts exemptions a very attractive form of fundraising. 

 

Because of the history of the private capital markets, there are misconceptions that it is expensive to invest. However, Reg A and Reg CF offerings can be affordable for investors, with investments for hundreds of dollars or less. However, non-accredited investors are limited to the amount they can invest each year by their annual income or net worth. The same restrictions don’t apply to private companies. Additionally, investors in the private capital markets have the potential for liquidity through alternative trading systems. 

 

Publicly traded companies are listed on an exchange so that anyone can buy their stocks. This means they have to follow specific guidelines set by the SEC to maintain listing requirements. Private company stock is not publicly available for trading, but there are still ways you may be able to get your hands on some shares. It’s important to note that different securities trade differently depending on where they’re bought from, and choosing the public or private capital market is the first step in any investment.

 

 

 

KorePartner Spotlight: Douglas Ruark, Founder and President of Regulation D Resources

Posted on by Oscar Jofre

With the recent launch of the KoreConX all-in-one RegA+ platform, KoreConX is happy to feature the partners that contribute to its ecosystem.

 

Douglas Ruark, the Founder and President of Regulation D Resources, has always been fascinated by the mechanisms and document structure used to syndicate capital. Starting his career nearly 30 years ago in corporate finance when he co-founded Heritage Finance, Inc. in 1992. Seven years later, he served as a primary founder of Regulation D Resources. The firm works primarily within the real estate, energy, tech, and manufacturing industries.

 

With Regulation D Resources, Ruark uses his expertise to help raise money for those industries through the Reg D and Reg A+ exemptions. This experience makes a difference when crafting SEC-required disclosures, evaluating proper exposure on the market, and analyzing clients’ business positions.

 

The fun part for Ruark is the deals with entrepreneurs that have developed technology that can have a significant impact and be a game-changer. He said: “I love seeing what entrepreneurs have developed.” That is why his company focuses on Reg D and Reg A+, helping companies structure their securities offering, and drafting offering documents. The company is determined to help entrepreneurs cross the line into the market so they can grow and succeed.

 

What Ruark enjoys about his partnership with KoreConX is the responsiveness of the staff. He said: “Oscar immediately reached out and set up a call to introduce services.” KoreConX has the same drive and vision that Ruark sees in other entrepreneurs. Plus, KoreConX’s application of tech to streamline compliance aligns with the goal he set out when developing Regulation D Resources’ Investor Portal Compliance Management application.

Join the all-in-one platform empowering private capital markets.

Free forever, KoreConX makes it easy for participants in private capital markets to manage their investment portfolios, raise capital, and meet global compliance standards along every step of the way.

Sign up, it's free! Book a call