The New Regulation D

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The New Regulation D

Regulation D is a regulation often referred to when a company starts issuing stock before going public, but for the casual money-raising of the garage inventor, it probably does not need to be used until one has numerous investors. Regulation D provides an exemption from a more thorough filing, but there are numerous other exemptions one can use, perhaps the most popular being the intrastate offering exemption. The private offering and accredited investor offerings are two other distinct exemptions. The sense of them is that as long as one is not advertizing and isn't defrauding anyone and the "buzz" about one's company is not powering investment in it, the government doesn't need to interfere in your arrangements with investors. I am glossing over some important details, but I should reiterate that the kind of handshake deal that the startup garage businessman probably makes should be along the lines of debt, that is converted to equity as an expression of gratitude, or rewarded with non-taxable gifts. "Regulation D" is a legalistic box for large budgets, and can be and is used for major stock offerings like Regulation A offerings, when those offerings are first presented to venture capital and "qualified" (rich) investors. (Putting $10,000 to legal fees seems reasonable if one is raising $1,000,000.)

The "box" of Regulation D is the assembled legal limitations and requirements associated with the multitude of sales transactions possible for real estate projects, public stock, small stock, and a variety of other projects. Regulation D is a broad sophisticated umbrella, though it is usually not necessary for small transactions. The actual vehicle of Regulation D is a short short form, practically a receipt, called "Form D." Like the CUSIP number that is associated with the American Banker's Association, it provides a public record of your actions.

Looking through the box of Regulation D is best started by reviewing the "Q&A: Small Business and the SEC" pamphlet linked below. Regulation D is divided into three sections: 504, 505 and 506. 504 requires the least documentation and has a limit of $1,000,000. 505 and 506 have higher limits. A recent change from the SEC has been the removal of the "unrestricted" nature of 504 D stock, unless a prospectus is provided. Theoretically, an investor used to be able buy stock before a small corporation "went public" as 504 D stock, and sell it to a friend, all before the company began selling its shares to the public -- on a handshake. This fact would later be recorded on a Form D and filed with the Securities and Exchange Commission. "Restricted" stock is stock that is discouraged from being sold, since it often represents large blocks of insider shares which may cause large swings down in price if sold all at once.

There is no fee for Form D filings. Form D is a kind of glorified receipt.

This change is described in the often-suggested SEC pamphlet copied here: Q&A: Small Business and the SEC .

Much of Regulation D is described in a FAQ-like series of questions, as part of the latter half of the Regulation D document available from the SEC web site, and copied here: Regulation D .

Here is the form -- Form D , if used to record raising less than $1,000,000 in more than one state, it doesn't need to be filed with the SEC until up to 15 days after money begins to be accepted. It is essentially a receipt. A good SEC Link for information and forms like this is http://www.sec.gov/smbus/forms/formssb.htm or http://www.sec.gov and click on "Small Business."

It is my understanding that according to Regulation S-T , Regulation A and Regulation D documents do not have to be submitted on diskette.

Regulation D is described in some detail in Funding Garage Inventions and to a lesser degree in Garage Shares .