As discussed in our previous article, “Raising Capital Through Private Placements Under Regulation D”, Regulation D provides exemptions to streamline capital raising and avoid the rigorous public disclosure requirements associated with public offerings. To perfect an offering under Regulation D, companies must file a notice of their offering with the Securities and Exchange Commission (the “SEC”) using Form D. Form D serves as a means of notification to the SEC when a company avails itself of the Regulation D exemptions. The submission of a Form D signals a company’s intent to conduct a private offering and provides key insights into the offering’s structure and scope. These filings play a crucial role in providing transparency, protecting investors, and facilitating regulatory oversight of private securities offerings.
Form D notices must be filed electronically using the SEC’s EDGAR system, which means any information submitted in a Form D is publicly available. Generally, the information required by a Form D includes the following:
- Issuer Information: This includes the company’s name, address, and state of incorporation.
- Related Persons: Certain individuals associated with the issuer, like executive officers and directors, are identified.
- Issuer’s Industry Group: This section identifies the industry in which the company operates.
- Issuer Size: Companies may provide their revenue range or aggregate net asset value range. However, companies may decline to disclose this information.
- Exemption Claimed: Federal exemptions and exclusions claimed. This is where the issuer provides the details about the Regulation D exemption being relied upon.
- Type of Filing: Companies must specify whether the filing is an initial filing or an amendment to a previously filed Form D.
- Duration of Offering: Companies must disclose whether they intend for the offering to last for more than one year. An amendment to the Form D must be filed annually if the offering reported on the original Form D is continuing on the anniversary date of the previous filing.
- Total Offering Amount: The maximum dollar amount expected to be raised from the offering should be stated.
- Total Amount Sold: This section discloses the total amount sold as of the filing date.
- Number of Investors: The number of investors that have already invested in the offering as of the filing date should be disclosed.
- Use of Proceeds: Dollar amount of proceeds from the offering that has been or is proposed to be used for payments to any related persons listed on the Form D.
- Additional Information: Various miscellaneous details like the number of non-accredited investors, types of securities offered, information related to sales commissions and finders’ fees, etc., must be disclosed.
The SEC requires that a company conducting an offering under Regulation D file a Form D no later than 15 calendar days after the “first sale of securities” in the offering. The SEC has clarified that the date of first sale for this purpose means “the date on which the first investor is irrevocably contractually committed to invest.” In the private investment fund context, the SEC has stated that such a date could be “the date on which the issuer receives the investor’s subscription agreement or check,” depending on the circumstances. In light of such SEC guidance, private investment funds may consider drafting their subscription documents in a way that irrevocably commits the investor to invest only upon acceptance by the fund (i.e., at the closing). Other issuers should be conscious of what actions may trigger the date of first sale, and thus, the 15-day countdown.
Although the Form D must be filed within 15 days after the date of the first sale, the SEC allows companies to file a Form D in advance of any sales. Companies often pre-file Form Ds in order to ensure compliance with the 15-day deadline. To indicate that no sales have yet occurred, companies may list “0” in the appropriate sections, such as “Total Amount Sold” and “Number of Investors.” However, if there are any material changes to the offering or its terms before any sales occur, companies are required to amend the previously filed Form D to reflect those changes.
In addition to the SEC Form D filing, companies may also need to make notice filings to state securities regulators where the offering is being conducted. State-level requirements vary, and companies must ensure adherence to both federal and state regulations.
Given the intricacies of reporting requirements, potential exemptions, and varying circumstances surrounding offerings, seeking legal expertise is advisable. The complex regulatory landscape of the U.S Securities Act of 1933, as amended, can be daunting. A qualified legal team can help navigate Regulation D’s complexities, ensuring compliance with regulatory obligations while efficiently raising capital.
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