Under Section 5 of the Securities Act of 1933, all offers and sales of securities, including offers or sales of limited partnership interests or membership interests in a private fund, must be registered with the Securities and Exchange Commission, unless an applicable exemption applies to such an offer or sale. Regulation D, promulgated under the Securities Act, and Section 4(a)(5) of the Securities Act both contain commonly used exemptions that permit issuers to offer and sell securities without having to register the offering with the SEC; however, such offerings are not completely free from regulatory oversight. Rather, any issuer relying on Regulation D or Section 4(a)(5) must make an electronic notice filing with the SEC on “Form D,” which serves as a notice to the SEC and the public generally of the issuer’s exempt offering. This post provides an overview of Form D, including the filing requirement, information that must be disclosed, timing of the initial filing and the duty to update filings, consequences of failing to file and certain interactions between federal securities law and state securities laws as related to Form D. Because Regulation D offerings are more common than Section 4(a)(5) offerings, this post primarily focuses on Regulation D offerings as related to Form D.
Safe-Harbor Exemptions
Regulation D refers to three commonly used safe-harbor exemptions contained in SEC Rules 504, 506(b) and 506(c), each with its own limits and offeree qualification requirements, which are beyond the scope of this post. In addition, Section 4(a)(5) of the Securities Act is a statutory exemption from registration with the SEC of an offer or sale of securities. All Regulation D offerings and Section 4(a)(5) offerings require the issuer to file a Form D with the SEC. (Form D is not required to be filed for offers or sales of securities not involving any public offering when an issuer relies on the registration exemption under Section 4(a)(2) of the Securities Act and does not also claim a safe harbor exemption under Regulation D or a back-up statutory exemption under Section 4(a)(5).)
Required Information
Form D requires issuers to disclose certain information regarding both the issuer and the offering, including the issuer’s name, jurisdiction of organization, form of entity, year of organization, principal place of business and industry group. Issuers must also identify any “related persons,” which include each executive, officer and director of the issuer and any other persons performing similar functions regardless of title. In addition, issuers must identify each person who has functioned as a promoter of the issuer within the past five years of the later of the first sale of securities or the date upon which the Form D filing was required to be made. Form D permits issuers to state their size, either by revenue range or aggregate net asset value range, but issuers may decline to disclose this information.
Issuers must also disclose details regarding the offering that triggered the Form D filing, including the following:
• The applicable safe-harbor exemption;
• Whether the issuer relies on an exemption to the Investment Company Act of 1940;
• The type of filing and the date of first sale;
• The type of securities included in the offering;
• The minimum investment amount from an outside investor;
• Whether any person has been paid commission or similar compensation in connection with the sale of the securities;
• The total offering amount, amount sold and amount remaining to be sold;
• The number of investors to whom securities have been sold; and
• The amount of gross proceeds that has been or will be used for payments to “related persons” (described above).
When to File
Any issuer relying on Regulation D or Section 4(a)(5) to conduct an offering must file Form D no later than 15 calendar days after the date of the first sale of securities in the offering. In a best efforts offering, where subscriptions are held in escrow until a minimum subscription level is attained, the issuer should file the Form D no later than 15 days after the first subscription is received in escrow. Issuers may also preemptively file a Form D as soon as the offering commences, but before any sales are made, to ensure compliance with the applicable safe-harbor exemption.
The date of first sale is determined by the date on which the first investor is irrevocably and contractually committed to invest in the offering. This will typically be when a sponsor holds its initial or first closing even if investors admitted at the initial closing are not required to contribute capital at that time. Any preliminary closing will likely count as the first day of sale if an investor is contractually committed to invest in the fund at that time. However, subsequent closings or investors increasing their capital commitment, each on the same terms as the initial closing or initial investment, generally would not constitute a new offering or sale and would be considered part of the same offering. In addition, mandatory capital calls are not considered new offerings and are also covered under the same Form D as filed in connection with the initial offering.
Amendments & Updates
Amendments to Form D may be filed at any time, and an amendment must be filed as soon as practicable to correct a material mistake of fact or error in the previous filing. In addition, amendments must be filed as soon as practicable to reflect a change in the information provided in the previous filing, except for changes that occur after the offering terminates or a change relating solely to the following information:
• The address or relationship to the issuer of a “related person”;
• The issuer’s size (revenue or aggregate net asset value);
• The minimum investment amount, if the change is an increase, or if the change in the minimum investment amount, combined with all other changes in such amount since the previous filing, does not result in a decrease in the minimum investment amount greater than 10%;
• Any address or states of solicitation (as disclosed in Item 12 of Form D);
• The total offering amount, if the change is a decrease, or if the change in total offering amount does not result in an increase of more than 10%;
• The amount of securities sold in the offering or the amount remaining to be sold;
• The number of non-accredited investors invested in the offering, unless, as a result of the change, this figure is greater than 35;
• The total number of investors in the offering; and
• The amount of sales commissions, finders’ fees or use of proceeds for payments to executive officers, directors or promoters, if the change is a decrease, or if the change does not result in an increase greater than 10%.
In addition, an amendment must be filed on or before the one-year anniversary of the initial filing if the offering is continuing at that time. If the offering continues for subsequent years, the amendment must be filed on or before the one-year anniversary of the most recent amendment. Therefore, if an issuer amends a previously filed Form D, the time to file the annual amendment resets such that the next filing must be made one year from the amendment, rather than one year from the initial filing.
Regardless of the reason for filing the amendment, any amendment must provide current information for all required responses to Form D. Accordingly, even if a filing is made only to correct a material mistake of fact, all information required to be disclosed on Form D, including information regarding the issuer and offering, must be updated even if the changes to such information alone would not trigger a mandatory update to Form D.
Consequences of Failing to File
Although Rule 503 requires an issuer to file Form D to comply with the rules promulgated under Regulation D, filing Form D is not a condition to the availability of a Regulation D exemption under Rule 504 or 506. Thus, if an offer or sale otherwise meets the requirements for exemption from registration under Regulation D, such offer or sale will not lose its exemption by virtue of the issuer failing to file Form D.
While failure to file Form D will not cause an offering to lose its exemption under Regulation D, courts are permitted to enjoin an issuer from relying on Regulation D in future offerings if the issuer failed to properly file a Form D. In addition, under Section 8A of the Securities Act, the SEC may institute cease-and-desist proceedings to enjoin the issuer from committing or causing violations of Rule 503 and levy fines upon the issuer for failure to comply with Rule 503.
Recently, on Dec. 20, 2024, the SEC announced charges against two private companies and a registered investment adviser for failure to timely file Form D in connection with several unregistered offerings aggregating from tens of millions to $250 million. The fines amounted to $60,000, $175,000 and $195,000 for what the SEC determined to be either Rule 504 or Rule 506(c) offerings due to involvement of general solicitation or advertising. Among the SEC’s stated concerns in connection with the noted enforcement actions and fines is that failure to file Form D (i) impedes its ability to assess the scope of Regulation D offerings in the market and whether Regulation D is providing an appropriate balance of investor protection against the furtherance of capital formation, especially for small businesses, (ii) harms its ability to monitor and enforce Regulation D compliance requirements (and similarly impacts state regulators and self-regulatory organizations), and (iii) creates investor transparency issues.
While it is unclear whether the SEC would take similar enforcement action in connection with a failure to file Form D for a 506(b) offering (that by its nature may not involve general solicitation or advertising), the SEC’s stated concerns appear applicable across all Regulation D offerings, including those under Rule 506(b). Potential state law consequences for failing to timely file Form D are considered below.
Interaction with State Securities Laws
The requirement to register the offer or sale of securities that are exempt from federal securities registration depends upon the applicable safe-harbor exemption used for the offering. Under the National Securities Markets Improvement Act of 1996, securities offered or sold in a Rule 506 offering are “covered securities” that are exempted from registration and qualification in individual states, but states may require notice filings for securities sold in a Rule 506 offering. Accordingly, issuers in Rule 506 offerings must analyze each applicable state’s securities laws to determine whether any notice filings must be made; and state securities laws generally mirror federal law by requiring that a notice filing be made within 15 days of the first sale.
In the case of state notice filings, however, the time to file is generally measured from the first sale of a security in that specific state. Accordingly, issuers must carefully track the states in which securities are sold to ensure they timely make any required notice filings for specific states. While the SEC has indicated that status as “covered securities” under NSMIA is not lost due to a failure to file Form D, some state regulators have pursued enforcement actions and penalties for failure to timely file Form D, as filing a copy of Form D with the applicable state is almost uniformly the procedure for notice filing compliance.
Unlike Rule 506 offerings, offerings made under Rule 504 are not “covered securities” under NSMIA. Therefore, issuers relying on Rule 504 must register the securities or qualify for an exemption from registration in each state in which a sale is conducted.
Filing Form D
All federal Form D filings, including amendments, must be filed through the SEC’s EDGAR filing system. State notice filings may be filed online at www.NASAAEFD.org, the Electronic Filing Depository maintained by the North American Securities Administrators Association. Currently, each state accepts filings via the Electronic Filing Depository, except the state of Florida, which does not require any notice filing in respect of a Rule 506 offering.
