Real Estate

Make Regulation D your best friend when it comes to raising capital

One of your best friends when it comes to private fundraising should be Regulation D. What is Regulation D? Simply put, Regulation D is a private securities offering – you can raise money without going through the SEC registration process. The registration process is quite complicated and should generally be reserved for when you want to raise LOTS of capital (for example millions and millions). You should be aware that there are three rules under which you can offer securities with Reg D.

Rule 504

Rule 504 provides an exemption for the offering and sale of up to $ 1,000,000 of securities in a 12-month period. With Rule 504, you cannot advertise to the public to sell your securities. In most circumstances, any investor who buys securities from you under Rule 504 cannot sell them without an exemption or registration. There are some circumstances that allow your investors to sell the securities they purchased from you under Rule 504, the details of which are beyond the scope of this website. You must provide each investor with sufficient information about your offering to comply with the anti-fraud provisions of the securities laws. Make sure not to omit any important information, as this could be considered false or misleading.

Rule 505

This rule provides an exemption to offer and sell securities for amounts up to $ 5 million in any 12-month period. You may not use general advertisements or solicitations to sell securities when using this exemption. Under Rule 505, you can sell your securities to an unlimited number of “accredited investors” and up to 35 unaccredited investors. Under Rule 505, there are specific requirements for the type of information you must provide to borrowers vs. non-accredited investors. Consult with your securities attorney about your particular offering. Additionally, with a Rule 505 offering, all or part of your financial statements generally must be audited by a licensed CPA. This can increase the expense of your offer.

Rule 506

Rule 506 is considered a “safe harbor” for the private offering exemption. This exemption stipulates that your buyers of securities meet the following criteria:

o Have sufficient knowledge and experience in financial and commercial matters to evaluate the risks and merits of the investment (the “sophisticated investor”), or be able to assume the economic risk of the investment;

o Have access to the type of information that is normally provided in a prospectus; Y

o Agree not to resell or distribute the securities to the public.

Like Rules 504 and 505, you cannot use a blanket request to find investors when you use an exemption from Rule 506. Rule 506 allows you to raise unlimited amounts of capital, sell securities to accredited investors and non-accredited investors (up to 35 ). The information, sale restriction, and disclosure requirements, including financial statements, are similar to Rule 505. The main difference between Rule 506 and Rule 505 is that any non-accredited investor to whom it sells securities must comply with the sophistication requirements.

As you can see, there are several ways to raise as much capital as you need without having to register your securities. State rules will vary on this, so it is always mandatory that you work with a securities attorney to make your offer. Since compliance with the securities law is much lower with exemptions vs. record, what’s stopping you? After all, there are hungry investors waiting for your offers!

This writing is for informational and educational purposes only. The content of this publication and of this website does not constitute legal or tax advice. Before carrying out any transaction, consult the appropriate legal and tax advisor.

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