Regulation D of the Securities and Exchange Commission permits the selling of unregistered securities to specific investors based on exemptions. Companies can sell unregistered securities to private parties by means of a private placement memorandum offering. The offering is made by means of a private placement memorandum offering, drafted by a securities attorney, which explains the offering and the risks. The offering must meet the requirements of regulation D and the three rules (Rule 504, 505 and 506), describing the specific exemptions permitted.
While the private placement does not need to be registered, the memorandum still must comply with the anti-fraud requirements of the federal Securities Act and any state securities statutes or regulations that may apply (known as Blue Sky laws). Given the potential complexity and length (the private placement memorandum may run 25 to 75 pages) you want an experienced securities lawyer reviewing your offering and drafting the private placement memorandum.
At the Law Offices of Peter C. Bronstein, our Los Angeles firm offers business clients experienced representation with a wide variety of business law and securities issues, including drafting of private placement memorandums. Contact us today to further discuss your business' needs.
The core requirement for the securities law is the concept of disclosure; investors must receive enough information from a company selling securities for them to evaluate the risks involved and determine if they are willing to accept those risks. To understand the complexly of the requirement, the following is the SEC's summary for how some of the Rules under Regulation D functions:
Rule 505 of Regulation D allows some companies offering their securities to have those securities exempted from the registration requirements of the federal securities laws. To qualify for this exemption, a company:
Here are some specifics about the financial statement requirements applicable to this type of offering:
Rule 506 of Regulation D is considered a "safe harbor" for the private offering exemption of Section 4(2) of the Securities Act. Companies using the Rule 506 exemption can raise an unlimited amount of money. A company can be assured it is within the Section 4(2) exemption by satisfying the following standards:
These rules are merely two of the regulations that apply to a private placement offering and some of the topics that need to be explained and disclosed within a private placement memorandum ("PPM"). A PPM provides the business the opportunity to present all elements of the business, including potential risks, to the investor.
Because of the complexity and the potential risk of violating the federal and state securities law and the accompanying liability to investors, these documents should be prepared in consultation with a lawyer with years of experience drafting private placement memorandum and dealing with the federal and state securities law.
For more information about a private placement memorandum or another business issue, contact the Law Offices of Peter C. Bronstein in Los Angeles, California. Call 310.203.2249 for a FREE initial consultation. For your convenience, evening and weekend appointments are available by request.