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What is Regulation D?

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  • Written By: John Lister
  • Edited By: Kristen Osborne
  • Last Modified Date: 21 July 2018
  • Copyright Protected:
    2003-2018
    Conjecture Corporation
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Regulation D is a part of the Securities Act 1933 which relates to the way companies issue securities such as stocks. In most cases, a company must register the details of security issues with regulators. Regulation D covers three main exemptions to this rule, each with several conditions that must all be met for the exemption to apply. Regulation D also covers certain aspects of online and telephone banking.

Regulation D covers rules 501 through 508 in the Securities Act 1933. These rules cover the general requirement to register a securities issue, plus the context of allowable exemptions. Rules 504, 505 and 506 detail the specific exemption categories.

Rule 504 of Regulation D exempts companies which offer up to or including $1 million of securities across a 12-month period. It only applies in states that have their own rules requiring registration. The local rules must also require a disclosure document to be prepared for potential investors. Sales must only be to "accredited investors," which are people who have a certain amount of wealth and financial knowledge.

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Rule 505 of Regulation D exempts companies which offer up to or including $5 million of securities across as 12-month period. Under this clause, securities must be sold on the condition that they are not resold for at least 12 years unless the transaction is registered. There is also a restriction that means securities can only be sold to up to 35 "unaccredited investors." There is no limit on the number of "accredited investors." Firms using this rule must usually have an independent public accountant certify their financial statements and then make these statements available to potential investors.

Rule 506 of Regulation D exempts companies that do not use general solicitation or advertising to attract investors. Instead they must only target individual investors. As with rule 505, there is a limit of 35 "unaccredited investors." There is no upper limit on the value of the securities that are offered. Securities must be restricted so that they are not freely traded after they have been issued.

Another measure in Regulation D covers savings accounts and money market accounts. This part of the regulation limits customers to six transactions each month for which they are not present. This could include online or telephone banking, plus automatic transfers to cover insufficient funds in a linked account. The limit doesn't affect transactions made in person, including at an ATM, and those done by mail with a signature.

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