Reg D 506c and Reg D 506b compared with Reg A+

According to the Securities Act of 1933, every company has to register its offering with the SEC in order to sell its shares. There are situations where exemptions allow the companies to sell their shares without an SEC registration. There are two exemptions — Reg D 506b and Reg D 506c.

Reg D 506b and Reg D 506c

Reg D provides three exemptions from the registration, Rule 504, Rule 505 and Rule 506. For purposes of online equity crowd investing, Rule 506 is most significant, and it splits into two different variations, 506b, and 506c. In each case, only accredited investors are allowed to invest. In Reg D, the Issuer company is allowed to make reasonable predictions about its intended growth and future plans (generally not allowed in Reg A+). Because Reg D 506c allows better access to offerings online by the public for viewing purposes it makes sense to compare Reg D 506c with Reg A+.

With a Reg D 506c offering, the company can raise an unlimited amount of capital, but only from accredited investors.

  • It is allowed for the issuing companies to promote and advertise their offerings far and wide with few limitations.
  • The issuer companies have to take steps to verify that the investors are actually accredited.
  • Although the companies don’t need to register with the SEC, they have to file a Form D, which includes information about the company’s offering, promotors, the companies themselves, and some further information about the offerings.

With a Reg D 506b offering, the company can raise an unlimited amount of capital, primarily from accredited investors.

  • The company is limited to marketing its offering to people that it already knows are accredited investors. So general advertising and promotion is not allowed.
  • Investors are allowed to self-state that they are accredited.
  • Up to 35 non-accredited investors are allowed with certain steps taken to ensure they are aware of the risks they are taking by investing.
  • Although the companies don’t need to register with the SEC, they have to file a Form D, which includes information about the company’s offering, promotors, the companies themselves, and some further information about the offerings.

Now let’s talk about Reg A+

Regulation A+ is a relatively new way to raise capital authorized into law in 2015 as part of the Jumpstart Our Business Startups Act (JOBS Act). With Regulation A+, companies can raise up to $75 million per entity per year online from investors of any wealth level worldwide.

With Reg A+ Tier 2 companies can raise $75 million/year from accredited AND non-accredited investors.

  • Anyone can invest, worldwide
  • The company can publicly advertise
  • No state registration required
  • Requires Audited Financials that go back up to two years
  • The company has to file a Form 1-A with the SEC and if the offering is Qualified by the SEC the company can start their online fundraising campaign which lasts for one year.
  • The company has to file annual US-GAAP audits and six-monthly Management Financials.

Reg A + and Reg D Liquidity

The Reg A+ shares are considered liquid, so investors can sell their shares, but the liquidity depends on what the issuer company does after the offering. If the company lists the shares on the NASDAQ or an OTC market, then the Reg A+ shares can be sold easily.

When an Issuer company does not list on the above exchanges, then liquidity is limited to the specialized Reg A+ aftermarket exchanges and broker-dealers that support Reg A+ share trading in the aftermarket. These exchanges are small and offer limited liquidity at present, they are growing to fill the need. The Issuer company may choose to offer direct liquidity to their investors by defining in their Offering Circular what valuation method they will use and what other restrictions will apply. This type of liquidity is regulated by Regulation M.

The securities sold in a Reg D offering are “restricted” under US securities law and cannot be easily resold for the first year.

Lockup restrictions are reduced for people or entities who are not affiliates after a year has passed since the securities were first acquired from the issuer (company). It is important to know that there are exceptions to the one-year lockup in the Reg D context — four such exceptions are listed below; Holders of restricted securities of non-reporting companies who are not affiliates, (affiliates are a type of insider) may resell in the following ways:

  • Privately in sales under the so-called “Section 4 (1 ½) exemption”, typically only to other accredited investors and on the basis of an opinion of counsel at any time;
  • Privately under Section 4(a)(7) of the Securities Act to accredited investors at any time;
  • Privately to “qualified institutional buyers” under Rule 144A at any time;
  • Publicly under Rule 144 one year after the securities were issued

You can read more about Reg D liquidity here

Advantages and disadvantages of Reg D and Reg A+

Reg D doesn’t require much preparation while in the case of a Reg A+ offering the audit, legal and marketing preparations can take 4 to 5 months.

In Reg D there is no limit on how much you can raise, in the case of reg A+ it is $75m/year.

With Reg A+ you can take your company public to the NASDAQ or NYSE.

With Reg D there are no reporting requirements after the offering.

With Reg A+ you can market your offering to non-accredited investors who are easier to reach and more likely to engage with your offering. Accredited investors have many investment opportunities so it is not easy to make them invest in your offering.

With Reg A+ people of any wealth level can invest

Reg D is less expensive because there are no audit requirements and don’t have to file the Form 1-A with the SEC.

What is Manhattan Street Capital

We assist companies through the whole capital-raising process to achieve a successful offering. Our website technology integrates the necessary services so companies can make their Reg A+ and Reg D offerings work efficiently.

If you want to learn more, please visit our FAQ page or contact us.

Here are some links that you might find useful.

Reg A+

Reg A+ Offering Schedule Guide

Reg A+ Cost Guide

How to get a broker-dealer for a 1% commission

Interactive, clickable video on how to use Reg A+ from start to completion

Reg D

What Is The Timeline or Schedule For A Reg D Offering?

How much does a Regulation D offering cost?

Contact Us Sign Up

About the author

Rod Turner, CEO

Rod Turner is the founder and CEO of Manhattan Street Capital, the #1 Growth Capital marketplace for mature startups and mid-sized companies to raise capital using Regulation A+. Turner has played a key role in building successful companies including Symantec/Norton (SYMC), Ashton Tate, MicroPort, Knowledge Adventure and more. He is an experienced investor who has built a Venture Capital business (Irvine Ventures) and has made angel and mezzanine investments in companies such as Bloom, Amyris (AMRS), Ask Jeeves and eASIC.

RodTurner@ManhattanStreetCapital.com

www.ManhattanStreetCapital.com

Manhattan Street Capital, 5694 Mission Center Rd, Suite 602–468, San Diego, CA 92108.

Please read our important investor warnings here

DISCLOSURES: Manhattanstreetcapital.com is a website owned and operated by Manhattan Street Capital (“MSC”), a DBA of FundAthena, Inc. MSC is paid fees by the companies that make investment and reservation offerings on this website. Be aware that payment of these fees may put MSC in a conflict of interest with the investor. See the MSC fee schedule here. By accessing this website or any page thereof, you agree to be bound by the Terms of Use and Privacy Policy, as amended from time to time and in effect at the most recent time you access this website or any page thereof. Nothing on this website shall constitute an offer to sell, or a solicitation of an offer to subscribe for or buy, any securities to any person in any jurisdiction to whom or in which such offer or solicitation is unlawful. Consequently, any featured, front page or prominent placement of a listed company on this site is not deemed to be a recommendation and may be based on various algorithms or selections that drive traffic to such listed company. MSC does not effect securities transactions, give investment advice or recommend any securities as it is not registered as a broker-dealer, Reg CF funding portal or investment adviser with the U.S. Securities and Exchange Commission or the securities regulatory commission, agency or body of any state of the United States or any non-U.S. jurisdiction. As such, MSC is not acting in a fiduciary capacity with respect to any user of the MSC services, and MSC disclaims any broker-client or advisor-client relationship with respect to any party using those services. Listed companies are actively seeking to raise early stage capital pursuant to Rule 506(b) or Rule 506(c) of Regulation D (“Regulation D”) under the U.S. Securities Act of 1933, as amended (the “Securities Act”), or pursuant to Regulation A (sometimes referred to as “Regulation A+”) under the Securities Act (“Regulation A”). A listed company’s offerings are being made by, and all the information included on this website relating to a listed company and its securities has been provided by and is the responsibility of, such listed company. A listed company’s offerings on this website, if made pursuant to Rule 506(b) or Rule 506(c) of Regulation D, generally are available only to “accredited investors” as defined in Regulation D. Accredited investors are able to identify listed companies in which they may have an interest after a certification process for Rule 506(b) offerings, while Rule 506(c) offerings are available for the general public to view. Offerings made pursuant to Regulation A are also generally available for the general public to view. Investing in securities, particularly in securities issued by start-up companies, involves substantial risk, and investors should be able to bear the loss of their entire investment. All investors should make their own determination of whether or not to make any investment based on their own independent evaluation and analysis. See our Investor Risks and Education Guide. MSC does not verify or assure that information provided by any listed company offering its securities is accurate or complete or that the valuation of such securities is appropriate. The content (Blogs, FAQs, News) posted on MSC may contain incorrect information, always get professional advice. Neither MSC nor any of its directors, officers, employees, representatives, affiliates or agents shall have any liability whatsoever arising from any error or incompleteness of fact or opinion in, or lack of care in the preparation of, any of the materials posted on this website. MSC does not provide legal, accounting or tax advice. Any representation or implication to the contrary is expressly disclaimed.

You can learn more about investing in Regulation D and Regulation A offerings from the SEC or FINRA.

© Copyright 2019 Manhattan Street Capital, Inc. All rights reserved. Patents pending. Copyright and Trademarks owned by Manhattan Street Capital

Serial entrepreneur, leader, expert in mergers, scaling up businesses, Reg A+ & IPOs. Optimal health. CEO ManhattanStreetCapital.com