Regulation D 506 Offering Requirements

If you want to raise money for your business, there are several options available through a private offering. One example is SEC Regulation D Rule 506C. This rule was enacted in 2012, and it provides businesses with an opportunity to raise money from private investors without having to register. This rule also allows companies to advertise and solicit investors to expand the shareholder base and raise capital through a PPM offering.

What do you need to know about Rule 506C offerings, and is it the best way for your business to raise money?

What is SEC Regulation D?

SEC Regulation D Rule 506C is a major expansion of Reg D, which was originally passed in 1982. The goal of Reg D is to allow business owners to raise capital privately from a large number of investors. Companies under Rule 506C are allowed to offer securities without having to register officially with the SEC.

At the same time, there are several rules that companies need to follow if they would like to raise money under Rule 506C.

The Basic Criteria of Rule 506C

There are several criteria that companies under Rule 506C need to meet. They include:

• An issuer is allowed to raise an unlimited amount of money under Rule 506C.
• Companies are also able to sell their securities to an unlimited number of accredited investors; however, non-accredited investors are not allowed to purchase securities from a company under Rule 506C.
• Blue Sky state notice filings should be completed.  See the blue sky fees here.
• Companies are also able to solicit and advertise their securities for sale as long as all of the investors are accredited.
• Companies that would like to work with non-accredited investors will have to work under Reg D Rule 506B, but they will not be able to advertise or solicit their securities.
• Companies that raise money under Rule 506C will be required to vet and verify all potential investors to make sure they are appropriately accredited.
• If online crowdfunding is taking place, accredited investor checks must take place.

If you are able to meet these criteria, you should be able to raise significant amounts of capital under rule Rule 506C.

What Are the Benefits of Rule 506C?

There are several benefits of raising money under Rule 506C. One of the biggest benefits is that you will not have to register with the SEC. Under the Securities Act, all securities have to be registered with the SEC unless there is an appropriate exemption somewhere. Registering with the SEC can be expensive and time-consuming, making it difficult for companies to raise money quickly. In particular, this can hurt smaller companies that have an urgent need for capital to keep up with the growth of their business, their customers, and the industry as a whole.

Now, under Reg D, there is an exemption under Rule 506C, which creates numerous advantages for companies that need to raise capital. Some of the top benefits include:

1. Under this rule, companies can access capital from suitable investors without having to slow down the process by filing a tremendous amount of paperwork.
2. There is no limit on the number of investors from which a company can raise money.
3. Investors will relatively small amounts of money can generate significant returns by pooling their money together under Rule 506C.
4. Rule 506C offerings do not cost as much money as traditional public offerings. This is directly related to the amount of time that companies save on filing fees and paperwork.
5. Rule 506C allows companies to advertise their capital fundraising rounds to investors.

While companies that decide to raise money under Rule 506C may not be able to work with non-accredited investors, they can still appeal to a very wide pool of investors with appropriate advertising.

What Are the Drawbacks of Raising Money Under Reg D 506C Offerings?

There are a few drawbacks to raising money under Rule 506C as well. One of the biggest drawbacks is that companies will not be able to raise money from non-accredited investors. Given that the overwhelming majority of potential investors are not accredited, this severely limits the pool of investors from which companies can draw.

Another significant drawback is that there are limitations on the resale of securities. This can be of significant concern to investors, particularly if they need to access liquid capital quickly, as they will not be able to immediately sell the securities they purchased from your company.

Finally, even though Rule 506C does cut out some of the paperwork, it is still important for your company to verify every accredited investor who would like to purchase securities from you. While this verification process does as significant time to the sale, there are numerous third-party companies you can hire to complete the vetting process on your behalf. For example, Equity Track being able to do these accredited investor checks.

Comparison Table: Regulation D Rule 506B vs Rule 506C

Below is a helpful table that will compare fundraising opportunities under Rule 506B and Rule 506C

Prepare for your Reg D Offering

If you would like to raise capital and issue securities through a Private Offering, you need to figure out which option is best for your needs. At Colonial Stock Transfer, we can provide the following services:

• Stock Transfer Agent and investor tracking for private companies
• Shareholder registry and issuances of securities
• SEC and State filings for your Regulation D offering
• Investor Accreditation Checks
• Introduction to Crowdfunding Portals, Brokers, and Marketing Specialists if needed

It is important to make sure that your company is put in the best position possible to have a successful round of fundraising. We can help you avoid potential obstacles and hurdles, attracting as many investors as possible.

Free Consultation

If you would like to see if Reg D offerings are a good fit for you, contact us today or complete the below form: