Regulation D Exemptions

Regulation D, established by the Securities and Exchange Commission, provides exemptions that allows companies to raise capital through the sale of unregistered securities.  Under Regulation D, companies can avoid the costs associated with a public offering.  Although companies are not required to register with the SEC under Regulation D, they are still required to provide the proper framework and disclosure documentations.  There are four exemptions under Regulation D: Rule 504, 505, 506(b), and 506(c).  The exemptions differ in regards to who can invest, how much capital can be raised, and who can be solicited.

Rule 504

Under Rule 504, an unlimited amount of investors can invest.  This includes accredited and non-accredited investors.  However, there is a limit on the amount of capital that can be raised. In a 12 month period, the maximum amount that can be raised is $1,000,000.  Additionally, you cannot solicit the public and can only ask known investors.

Rule 505

Rule 505 differs from Rule 504 in regards to who can invest and how much capital can be raised.  Under Rule 505, an unlimited amount of accredited investors can invest.  However, the number of non-accredited investors is limited to a maximum of 35.  Companies can raise up to $5,000,000 in a 12 month period.  Similar to Rule 504, you are not allowed to solicit the public and can only ask known investors.

Rule 506(b)

Rule 505(b) allows an unlimited amount of accredited investors and a maximum of 35 non-accredited investors.  A key difference between 506(b) and the previous exemptions discussed is that it allows companies to raise an unlimited amount of capital.  Similarly, the company may not solicit the public and can only ask known investors.

Rule 506(c)

Unlike the previous exemptions, Rule 506(c) only allows accredited investors to invest.  Non-accredited investors are not allowed.  Another unique aspect is that there are no limitations placed on marketing.  Therefore, you can solicit the public.  Additionally, there is an unlimited amount of capital that can be raised.