Rules 505 and 506 of Regulation D deal with offers to sell securities. Under the Securities Act of 1933, any offer to sell securities must either be registered with the SEC or meet an exemption. Regulation D (or Reg D) contains three rules providing exemptions from the registration requirements, allowing some companies to offer and sell their securities without having to register the securities with the SEC.

In Rules 504 and 505, Regulation D implements §3(b) of the Securities Act of 1933 (also referred to as the '33 Act), which allows the SEC to exempt issuances of under $5,000,000 from registration. It also provides (in Rule 506) a "safe harbor" under §4(2) of the '33 Act (which says that non-public offerings are exempt from the registration requirement). In other words, if an issuer complies with the requirements of Rule 506, they can rest assured that their offering is "non-public," and thus that it is exempt from registration.

Comparison chart

Rule 505 Regulation D versus Rule 506 Regulation D comparison chart
Edit this comparison chartRule 505 Regulation DRule 506 Regulation D
Must File Form D Yes Yes
allows companies to decide what information to give to accredited investors. Yes NO
Restricted Securities Yes Yes
General Solicitation Can not use Can not use
Accredited Investors Unlimited unlimited
Non-accredited Investors 35 35
Requires investor "sophistication" No Yes
Limit $5 million (12 month period) No Limit

Rule 505 Regulation D

Rule 505 of Regulation D allows some companies offering their securities to have those securities exempted from the registration requirements of the federal securities laws. To qualify for this exemption, a company:

Rule 505 allows companies to decide what information to give to accredited investors, so long as it does not violate the antifraud prohibitions of the federal securities laws. But companies must give non-accredited investors disclosure documents that generally are equivalent to those used in registered offerings. If a company provides information to accredited investors, it must make this information available to non-accredited investors as well. The company must also be available to answer questions by prospective purchasers.

Here are some specifics about the financial statement requirements applicable to this type of offering:

Rule 506 Regulation D

Rule 506 of Regulation D is considered a "safe harbor" for the private offering exemption of Section 4(2) of the Securities Act. Companies using the Rule 506 exemption can raise an unlimited amount of money. A company can be assured it is within the Section 4(2) exemption by satisfying the following standards:

Requirement to file Form D

While companies using the Rule 505 exemption do not have to register their securities and usually do not have to file reports with the SEC, they must file what is known as a "Form D" after they first sell their securities. Form D is a brief notice that includes the names and addresses of the company’s owners and stock promoters, but contains little other information about the company.

References

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"Rule 505 Regulation D vs Rule 506 Regulation D." Diffen.com. Diffen LLC, n.d. Web. 21 Sep 2016. < >