Reg D Resources: Exemptions, Accredited Investors & Form D

The Regulation D exemptions are three SEC rules — 504, 506(b), and 506(c) — that let a company sell securities to private investors without going through full registration. They differ on three points that drive everything else: how much you can raise, whether you can advertise the offering, and who is allowed to buy. Pick the wrong one, or mishandle the follow-up filings, and you can lose the exemption and open the company to enforcement action.

The Three Exemptions Compared

Rule 504

Rule 504 caps a company’s raise at $10 million within any 12-month period.¹ It fits smaller rounds where the company isn’t trying to reach a broad audience. General advertising is off-limits in most cases, though some state-level exemptions permit it when sales are limited to accredited investors.²

Rule 506(b)

Rule 506(b) has no dollar cap, but you cannot advertise the offering. You can sell to an unlimited number of accredited investors and to up to 35 non-accredited investors, and those non-accredited investors must be financially sophisticated enough to evaluate the risks.³ Including any non-accredited investor triggers heavier disclosure obligations, which is why many issuers keep 506(b) rounds accredited-only.

Rule 506(c)

Rule 506(c) also has no cap and does allow open advertising through social media, public events, or any other channel. The tradeoff is that every purchaser must be a verified accredited investor, and the issuer has to take reasonable steps to confirm that status rather than take the investor’s word for it.⁴ Companies that pick 506(c) usually have the marketing capacity to reach high-net-worth prospects at scale.

Who Qualifies as an Accredited Investor

Every Regulation D path depends on identifying accredited investors correctly. Get this wrong and the exemption is at risk. The SEC recognizes several routes to accredited status.⁵

An individual qualifies with income above $200,000 in each of the two most recent years, or $300,000 combined with a spouse or spousal equivalent, and a reasonable expectation of the same level in the current year. A net worth above $1 million, individually or with a spouse or spousal equivalent, is the alternative. Primary residence value does not count.⁵

Certain FINRA licenses also qualify a person regardless of income or net worth: the Series 7, Series 65, and Series 82, held in good standing.⁵

Entities like trusts, corporations, LLCs, and 501(c)(3) organizations generally qualify with total assets above $5 million, provided the entity wasn’t formed specifically to buy the securities on offer. An entity whose equity owners are all individually accredited also qualifies.⁵

Verifying Status

Under Rule 506(b), issuers can rely on investor self-certification because no advertising is involved. Under 506(c), the standard is higher. Reasonable verification steps typically include reviewing tax returns, W-2s, bank statements, or brokerage statements, or obtaining a written confirmation from a CPA, attorney, or registered broker-dealer.⁴ Keep the records. They are your proof that the company did not sell to an unqualified investor.

Disclosure and Anti-Fraud Obligations

Exemption from registration is not exemption from disclosure. If a 506(b) offering includes any non-accredited investor, the issuer must provide disclosure documents similar to what a registered offering would produce, including financial statements that may need to be audited.⁶ Even in accredited-only rounds, most issuers prepare a Private Placement Memorandum covering company history, current financials, the use of proceeds, and the risks. The use-of-proceeds section should be specific: investors want to know whether their money is going toward product development, debt payoff, or executive compensation.

Federal anti-fraud rules apply either way. Rule 10b-5 makes it illegal to state false material facts, omit material facts that would make your statements misleading, or engage in any scheme that operates as fraud in connection with the sale of securities.⁷ That liability reaches the issuer, its officers and directors, and anyone else involved in the offering. A misleading PPM can lead to SEC enforcement or private investor lawsuits regardless of which exemption you claimed.

Filing Form D

After the first sale of securities, the issuer must file Form D with the SEC through EDGAR within 15 calendar days.⁸⁹¹⁰¹¹

A late Form D does not automatically kill the exemption. The SEC has stated that the filing requirement is not a condition of the Rule 504, 506(b), or 506(c) exemptions.¹² The SEC can still bring enforcement action for failure to file, and an issuer that misses the deadline should file as soon as practicable. Skipping the filing entirely signals a broader compliance problem and can also complicate state-level filings.

State Blue Sky Notices

The federal Form D does not cover state obligations. Rule 506 offerings are exempt from state registration and review, but states can still require a notice filing, a consent to service of process, and a filing fee.¹² Fees run from as low as $50 in some jurisdictions to over $1,000 in others, and they are generally non-refundable. You need to file in every state where you sell securities or solicit investors, so multistate offerings involve real administrative overhead.

Keeping Form D Current

If the offering continues, Form D isn’t a one-time filing. Issuers must file an annual amendment on or before the anniversary of the prior filing while the offering is ongoing, and must amend as soon as practicable to correct any material error or reflect a material change.¹³ The regulation identifies specific changes as material enough to require an amendment:

A cumulative increase of more than 10% in the offering amount over the last filing.
A cumulative increase of more than 10% in amounts paid to executive officers, directors, or promoters.
A cumulative decrease of more than 10% in the minimum investment amount.
The addition of executive officers, directors, or promoters.

Minor updates do not require an amendment. Contact-information changes, shifts in the number of investors (as long as non-accredited investors stay at 35 or below), and decreases in offering amount or compensation can be left alone. When an amendment is filed, all information on the form must be brought current, not just the item that triggered it.¹³

Bad Actor Disqualification

Rule 506(d) bars a company from using the Rule 506 exemptions if certain people connected to the offering have relevant legal problems. Covered persons include directors, executive officers, 20% equity holders, promoters, and anyone paid to solicit investors, among others.¹⁴ Disqualifying events include:

Felony or misdemeanor convictions involving securities fraud, false SEC filings, or the business of a broker, dealer, or investment adviser, within ten years of the sale (five years for the issuer and affiliated entities).
Court injunctions within five years that bar the person from securities-related conduct.
Final orders from state securities commissions, banking regulators, or federal agencies that bar association with regulated entities or are based on fraudulent conduct within ten years.

The lookback runs from the time of sale, not the filing date.¹⁴ If a disqualifying event surfaces after sales have started, the exemption is lost going forward. Background checks on every covered person belong at the front end of the offering, not after it launches.

What Investors Should Know About Resale

Securities purchased in a Regulation D offering are restricted. Investors cannot freely resell them.⁶ Under Rule 144, the minimum holding period is six months for SEC reporting companies and one year for non-reporting companies, with additional conditions after that depending on whether the seller is an affiliate.¹⁵ In practice, capital should be considered illiquid for longer than the minimum, since a market for the shares may never develop.

Running Offerings Back to Back

If you run offerings close together, the SEC may treat them as a single transaction under the integration doctrine, and a combined offering may violate the rules of the exemption you claimed on either piece. Rule 152 provides a safe harbor: offerings separated by at least 30 calendar days are generally not integrated. When one offering used general solicitation and the next does not permit it, the issuer must show either that no investor in the second offering was solicited through the earlier advertising or that a pre-existing substantive relationship existed with those investors before the second offering began.¹⁶ These safe harbors are non-exclusive, and a series of transactions designed to evade registration will not qualify regardless of timing.

1
Securities and Exchange Commission. Exemption for Limited Offerings Not Exceeding $10 Million – Rule 504 of Regulation D
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eCFR. 17 CFR 230.504 – Exemption for Limited Offerings and Sales of Securities
3
U.S. Securities and Exchange Commission. Private Placements – Rule 506(b)
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U.S. Securities and Exchange Commission. General Solicitation – Rule 506(c)
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U.S. Securities and Exchange Commission. Accredited Investors
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U.S. Securities and Exchange Commission. Rule 506 of Regulation D
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eCFR. 17 CFR 240.10b-5 – Employment of Manipulative and Deceptive Devices
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eCFR. 17 CFR 230.503 – Filing of Notice of Sales
9
U.S. Securities and Exchange Commission. Regulation D Offerings
10
U.S. Securities and Exchange Commission. Prepare and Submit My Form ID Application for EDGAR Access
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U.S. Securities and Exchange Commission. What Is Form D?
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U.S. Securities and Exchange Commission. Frequently Asked Questions and Answers on Form D
13
eCFR. 17 CFR 239.500 – Form D, Notice of Sales of Securities
14
eCFR. 17 CFR 230.506 – Exemption for Limited Offers and Sales Without Registration
15
U.S. Securities and Exchange Commission. Rule 144 – Selling Restricted and Control Securities
16
U.S. Securities and Exchange Commission. Integration