Regulation D Rule 506

Regulation D governs the limited offer and sale of securities without registration under the Securities Act [17 CFR 230.501 – 230.508]. Regulation D establishes three exemptions from Securities Act registration.

As we discussed earlier, Rule 506 is a "safe harbor" for the
private offering exemption. If an issuer's company satisfies the following standards, an issuer can be assured that an issuer are within the Section 4(2) exemption:

• An issuer can raise an unlimited amount of capital;
• An issuer cannot use general solicitation or advertising to market the securities;
• An issuer can sell securities to an unlimited number of accredited investors (the same group we identified in the Rule 505 discussion) and up to 35 other purchasers. Unlike Rule 505, all non-accredited investors, either alone or with a purchaser representative, must be sophisticated that is, they must have sufficient knowledge and experience in financial and business matters to make them capable of evaluating the merits and risks of the prospective investment;
• It is up to an issuer to decide what information an issuer give to accredited investors, so long as it does not violate the antifraud prohibitions. But an issuer must give non-accredited investors disclosure documents that generally are the same as those used in registered offerings. If an issuer provides information to accredited investors, an issuer must make this information available to the non-accredited investors as well;
• An issuer must be available to answer questions by prospective purchasers;
• Financial statement requirements are the same as for Rule 505; and
• Purchasers receive "restricted" securities. Consequently, purchasers may not freely trade the securities in the secondary market after the offering.