Most private companies raise money under one of two SEC exemptions: Regulation D or Regulation A. They solve different problems. Choosing the wrong one costs time, money, and sometimes the exemption itself.
Regulation D in Brief
Regulation D — usually Rule 506(b) or 506(c) — is the workhorse of private capital.
- ›No limit on the amount raised
- ›Investors: accredited investors (506(c): accredited only, verified; 506(b): plus up to 35 sophisticated non-accredited)
- ›Advertising: prohibited under 506(b); permitted under 506(c) with verification
- ›SEC review: none — file a Form D after the first sale
- ›Shares: restricted; resale generally under Rule 144
- ›Disclosure: a PPM is the norm
Regulation A in Brief
Regulation A, sometimes called a "mini-IPO," is closer to a public offering.
- ›Limits: Tier 1 up to $20 million; Tier 2 up to $75 million in a 12-month period
- ›Investors: the general public, with investment limits for non-accredited investors in Tier 2
- ›Advertising: permitted, including testing the waters
- ›SEC review: an offering circular on Form 1-A, reviewed and qualified by SEC staff
- ›Shares: generally not restricted
- ›Ongoing reporting: Tier 2 requires annual, semiannual, and current reports
Side by Side
| | Reg D (506) | Reg A (Tier 2) |
|---|---|---|
| Maximum raise | Unlimited | $75M / 12 months |
| Who can invest | Mostly accredited | Anyone (with limits) |
| SEC review | None | Yes |
| Time to launch | Weeks | Months |
| Cost | Lower | Higher (audit, review) |
| Resale | Restricted | Generally freely tradable |
How to Choose
Choose Reg D if your investors are accredited, you want speed, and you can live with restricted shares.
Choose Reg A if you want to raise from your customers or community, need broad advertising, or want a step toward a public market — and you can budget for audited financial statements, SEC review, and ongoing reporting.
The question I ask first is always the same: how will you find your investors? The marketing plan decides the exemption.
I discussed Regulation A in depth on the podcast: Regulation A-Plus: What the Mini-IPO Actually Costs You.
Related Reading
Questions about how this applies to your company? Email me directly at flehrer@securitiesattorney1.com or call (561) 706-7646. No intake form, no screening call.
This post is general information, not legal advice.
Authoritative Sources
- 17 C.F.R. §§ 230.500–230.508 — Regulation D — Electronic Code of Federal Regulations
- SEC Investor Bulletin: Accredited Investor Definition — U.S. Securities and Exchange Commission
- 17 C.F.R. §§ 230.251–230.263 — Regulation A — Electronic Code of Federal Regulations
- SEC: Regulation A Offering Guidance for Small Businesses — U.S. Securities and Exchange Commission
- 17 C.F.R. Part 240 — General Rules and Regulations, Exchange Act — Electronic Code of Federal Regulations
- SEC EDGAR — Full-Text Search of Company Filings — U.S. Securities and Exchange Commission
Primary sources are cited so readers can verify the law directly. Rules and staff guidance change; see our editorial and corrections policy to report an error or an outdated citation.
Frederick M. Lehrer served as an enforcement attorney in the SEC's Division of Enforcement at the Southeast Regional Office from 1991 through 2000, and concurrently as a Special Assistant United States Attorney in the Southern District of Florida from 1997 through 1999, prosecuting securities-related financial crimes. He has practiced securities and corporate law in private practice for more than twenty-five years, advising issuers worldwide on SEC registration, disclosure obligations, Regulation D private placements, Regulation A offerings, and going public transactions. The firm is based in Florida and serves clients internationally.
Questions about how this applies to your company are answered personally — most within the same business day. Flat-fee arrangements available for most work.