Regulation D is a set of rules issued by the Securities and Exchange Commission (SEC) under the Securities Act of 1933 that provides an exemption for certain private offerings of securities. This exemption allows companies to raise capital from investors without registering the securities with the SEC, and without having to comply with the registration and reporting requirements that apply to public offerings.
Regulation D consists of three rules: Rule 504, Rule 505, and Rule 506.
Rule 504 of Regulation D allows companies to raise up to $5 million in a 12-month period from any investor, regardless of their net worth or income. This rule is often used by smaller companies that are not able to meet the more stringent requirements of the other two rules.
Rule 505 of Regulation D allows companies to raise up to $5 million in a 12-month period, but the offering is restricted to no more than 35 investors who are not accredited investors.
Rule 506 of Regulation D is the most widely used of the three rules. It allows companies to raise an unlimited amount of capital from an unlimited number of accredited investors, and up to 35 non-accredited investors.
One of the main differences between 506(b) and 506(c) is that under 506(b) companies are prohibited from general advertising and general solicitation of the offering, However under 506(c) companies are permitted to use general advertising and general solicitation to reach out to investors as long as the investors are verified to be accredited.
It’s worth noting that, even though Regulation D provides an exemption from registration, companies are still required to file a notice with the SEC of their intent to rely on the exemption, and also provide certain disclosures and investor-protection provisions. Also it is subject to state-specific laws and regulations.