Going Public by Way of Regulation D 504 Offering...
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Going Public Through a Regulation D (504) Offering
Introduction
Under the Securities Act of 1933, companies looking to sell securities must either register with the SEC or qualify for an exemption. Regulation D offers three such exemptions, enabling smaller companies to offer and sell securities without registering with the SEC.
Understanding Rule 504
Rule 504 of Regulation D allows companies to bypass federal registration for securities offerings up to $1,000,000 within a 12-month period. This exemption is not available for Blank Check companies or those required to file reports under the Securities Exchange Act of 1934.
Conditions for Using Rule 504
Typically, companies cannot publicly solicit or advertise their securities under this exemption. The securities sold are considered "restricted," meaning they cannot be resold without registration or a specific exemption. However, companies can publicly offer freely tradable securities if they meet one of the following conditions:
1. State Registration and Disclosure: The offering is exclusively registered in states requiring public filing and a substantive disclosure document for investors.
2. Multi-State Compliance: The offering is registered in a state with disclosure requirements and sold in states without such requirements, provided disclosure documents are given to all investors.
3. State Law Exemptions: The offering complies with state laws that permit general solicitation, but sales are limited to accredited investors.
Defining Accredited Investors
Federal securities law defines accredited investors as:
- Financial institutions (e.g., banks, insurance companies)
- Employee benefit plans with certain criteria
- Organizations or partnerships with assets over $5 million
- Company directors, executive officers, or general partners
- Businesses where all equity owners are accredited investors
- Individuals with a net worth exceeding $1 million or an income above $200,000 ($300,000 with a spouse)
- Trusts with assets over $5 million, directed by a knowledgeable person
Importance of Accurate Information
Even in private sales without specific disclosure requirements, companies must provide accurate information to avoid violating anti-fraud securities laws. All provided information must be truthful and omission-free to prevent misleading investors.
Benefits of Regulation D (504)
Opting for a Regulation D (504) offering can be more cost-effective and quicker than a traditional IPO, assisting smaller companies in going public and having their shares traded.
Conclusion
The Regulation D (504) offering is a recommended method for going public, provided a company qualifies. Our firm reviews each company to assess the viability of this path.
For more information, visit: [Genesis Corporate Advisors](http://www.genesiscorporateadvisors.com)
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