Houston Securities Lawyer

Federal Exemptions

An offer or sale of a security is subject to federal securities laws. It must either be registered with the U.S. Securities and Exchange Commission (SEC) or qualify for an exemption.

Some corporations can issue and sell their securities without registering the offering with the SEC, thanks to the exemptions provided by Regulation D under the Securities Act.

Rule 504

Any company seeking to raise capital from investors must either meet the exemption requirements or register the securities with the SEC and the relevant state securities board(s).

The SEC changed Regulation D by repealing Rule 505 and amending Rule 504 in 2017. Under Rule 504, the previous cap on businesses raising money was increased from $1 million to $10 million. Additionally, there is no restriction on the number of investors, and investors do not have to be accredited. There is also no need for disclosure. The company may advertise under certain conditions.

The SEC must receive a notice on Form D, and “bad actors” are not eligible for the exemption.

Rule 506(b)

When corporations issue and sell securities, Rule 506 of Regulation D allows two special exemptions from registration. Companies that depend on Rule 506 exemptions are permitted to raise unlimited money.

A corporation can be sure it falls within the exemption under Rule 506(b)—a “safe harbor” under the Securities Act—by meeting a couple of requirements, including:

• The number of “accredited investors” to which the corporation may sell stocks is unlimited, while the maximum number of additional buyers is 35.
• All non-accredited investors must be “sophisticated,” which means they must have the knowledge and expertise in financial and commercial topics to weigh the benefits and dangers of a potential investment.
• The business is not permitted to market the securities by general solicitation or advertising.

Speak to a qualified Houston securities lawyer at Titus Law Firm for additional requirements.

Rule 506(c)

Rule 506(c) allows issuers to widely seek and widely publicize an offering as long as the issuer takes reasonable measures to confirm that all buyers in the offering are accredited investors and specific additional requirements in Regulation D are met.

Companies that adhere to Rule 506(b) or (c) need not register their offering of securities with the SEC, but they must submit an electronic form known as Form D to the SEC following their initial sale of shares.

Regulation Crowdfunding

A private company may raise money from the public through Regulation Crowdfunding, an exemption from securities laws.

Crowdfunding is a method that enables small businesses and startups to raise money from numerous people who might not otherwise be considered “accredited investors.”

A Regulation Crowdfunding offering is open to everyone. Nonetheless, you are restricted in how much you may invest in these transactions for any 12-month period due to the dangers of this type of investment. Your annual income and net worth will determine the maximum amount you are permitted to invest.

Regulation A

There are two distinct tiers under Regulation A. In 2015, Regulation A was revised to enable businesses to generate income under two categories corresponding to two sorts of investments.

Under Tier 1, an issuer may raise up to $20 million in 12 months. Tier 2 allows issuers to raise $75 million in a single 12-month period.

Companies in Tier 1 are exempt from ongoing reporting obligations but are still required to submit a report on the outcome of the offering. Companies in Tier 2 are obliged to submit ongoing reports that include the company’s final status and audited financial statements.

Tier 1 and Tier 2 offerings must meet fundamental criteria, such as corporate eligibility, rules for disqualifying bad actors, and disclosure.

Contact one of our Houston securities attorneys for more information on requirements.

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