Chart: SEC Registration Exemptions

 Photo by  Natalia Y  on  Unsplash

Photo by Natalia Y on Unsplash

If you’re looking to raise money for your startup, whether through a VC financing or an ICO, you need to be mindful of applicable securities laws. 

Under U.S. federal securities laws, the offer and sale of securities must be either registered with the SEC or fall under an exemption from registration.  The term “securities” covers a wide array of financial instruments (including the broad category of “investment contracts” that has recently gained much attention in the ICO market).  SEC registration is a monumental undertaking typically reserved for IPOs, so early-stage companies should generally aim to fit their startup financing round or ICO within an available exemption from registration. 

This chart maps out the different restrictions and obligations placed on the issuing company and investors in connection with securities offerings pursuant to the most common exemptions from registration under U.S. federal securities laws.


Offering Exemption Marketing of Offering Investor Qualifications Offering Limit Disclosure Requirement Intermediary Resales of Securities SEC Filing Other
Regulation D, Rule 504 No general solicitation or advertising allowed. Open to accredited investors and non-accredited investors. $5M per 12-month period. No need for disclosure document. No need to use intermediary to sell securities. Generally restricted (subject to 1-year holding period for non-reporting
companies).
Form D (short, basic info about offering and investors). Requires compliance with individual state registration
laws (no federal pre-emption).
Regulation D, Rule 506(b) No general solicitation or advertising allowed. An unlimited number of accredited investors and up to 35 non-accredited investors.

Self-certification of accredited investor status (i.e., can rely on statements of investor without verification).
None. No need for disclosure document unless raising from non-accredited investors. No need to use an intermediary to sell securities. Generally restricted (subject to 1-year holding period for non-reporting companies). Form D (short, basic info about offering and investors).
Regulation D, Rule 506(c) General solicitation and advertising allowed. All investors must be accredited investors.

Must take additional steps to verify accredited investor status.
None. No need for disclosure document. No need to use intermediary to sell securities. Generally restricted (subject to 1-year holding period for non-reporting
companies).
Form D (short, basic info about offering and
investors).
Regulation
Crowdfunding
Limited general solicitation and advertising allowed (notice of offering
and terms of offering may be provided through an intermediary).
Open to accredited investors and
non-accredited investors.

Limit on amount of investment during each 12-month period:

- If annual income or net worth is less than $100K, can invest up to the greater of either $2K or 5% of the lesser of annual income or net worth.

- If both annual income and net worth are equal to or more than $100K, can invest up to 10% of annual income or net worth, whichever is less, but not to exceed $100K.
$1M per 12-month period. Need disclosure document (similar to a registration statement) and financial statements (the type of financial statements depends on the amount raised). Must use an intermediary to sell securities (either a broker-dealer or a licensed funding portal). Generally restricted (subject to 1-year holding period, except in certain limited circumstances including (1) to the issuer of the securities; (2) to an accredited investor; (3) as part of an offering registered with the SEC; or (4) to a family member or for trust and estate purposes). Form C (similar to a registration statement). Issuer must not be an investment company under the Investment Company Act or a SEC-reporting company.

Following
the offering, the issuer will be subject to certain ongoing SEC-reporting
obligations.
Regulation A+, Tier 1 General solicitation and advertising allowed. Open to accredited investors and non-accredited investors. $20M. Need disclosure document (similar to a registration statement) and reviewed financial statements (some states may require financial audits).

Disclosure document is subject to SEC and state review.
No need to use intermediary to sell securities. Generally unrestricted. Form 1-A and PPM. Requires compliance with individual state registration laws (no federal pre-emption).

Following the offering, the issuer will not be subject to ongoing public financial reporting.
Regulation A+, Tier 2 General solicitation and advertising allowed. Open to accredited investors and non-accredited
investors.

Limit on amount of investment:

- Unaccredited
Investors: Greater of 10% of income or net worth.

- Entities: 10% of revenue or net assets.

- Accredited Investors:
Unlimited.
$50M. Need disclosure document (similar to a registration statement) and audited financial statements.

Disclosure document is subject to SEC review.
No need to use intermediary to sell securities. Generally unrestricted. Form 1-A and PPM. Following the offering, the issuer will be subject to
certain ongoing SEC-reporting and financial statement obligations (which can be suspended if the Reg A+ securities are held by less than 300 holders).

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