What is Form D?
Form D is an SEC filing form to be used to file a notice of an exempt offering of securities under Regulation D of the U.S. Securities and Exchange Commission. Commission rules require the notice to be filed by companies and funds that have sold securities without registration under the Securities Act of 1933 in an offering based on a claim of exemption under Rule 504 or 506 of Regulation D or Section 4(6) of that statute. Commission rules further require the notice to be filed within 15 days after the first sale of securities in the offering. For this purpose, the date of first sale is the date on which the first investor is irrevocably contractually committed to invest. If the due date falls on a Saturday, Sunday or holiday, it is moved to the next business day. Privately held companies that raise capital are required to file a Form D with the SEC to declare exempt offering of securities. Many of these filings show investments in small, growing companies through venture capital and angel investors, as well as certain pooled investment funds. Companies that sell securities typically have to register with the Securities and Exchange Commission (SEC) under the Securities Act of 1933. This is a long process and can make it complicated to follow and understand the law. Smaller companies seeking venture capital can instead file Form D – a process that is quicker, simpler and protects the company from potential legal problems.
Why Is Form D Important?
Form D is important because it keeps you within legal boundaries. You can’t simply begin selling securities to fund your business without filing the appropriate paperwork. If your offerings aren’t public, you can avoid the typical registration process. Regardless of your final decision, you must let the SEC know you’re offering securities. Keep in mind that you must raise funding from “accredited investors” for the Form D exemption to apply as noted in Rule 506 of Regulation D . These are investors who usually earn over $200,000 a year or are worth at least $1 million. You can also offer securities to companies worth at least $5 million. By either registering with the SEC or filing Form D, a business has taken the time to show they’re not providing an illegal public offering.
Reasons to Consider Not Using Form D
There are many exemptions from registering with the SEC, but companies usually stick with Form D because it provides the most benefits. That’s why there are very few reasons to consider not using Form D. These include the following:
• You’ve decided to make a public offering of securities for funding.
• You want to keep the names of your investors from becoming public knowledge.
Filing Form D makes it easy for the public to find all of your company’s information. However, there are some businesses that wish to maintain anonymity for their investors. For this reason, business owners should take a moment to consider whether making their information public might actually hurt the company.
Reasons to Consider Using Form D
There are several benefits to filing Form D, which is why it’s the most popular exemption to the rule requiring Securities Act of 1933 registration. The following are some of the biggest reasons to consider using Form D:
• It is a simple process that only involves notifying the SEC of stock promoters, executive officers, and other general information.
• It covers you throughout America, so there’s little time wasted learning state laws.
• It avoids liabilities that could tarnish a company’s reputation.
• There are no fees for filing a Form D.
Deadline for Filing Form D
You must file Form D within 15 days of beginning to sell securities. Qualifying for an exemption under Regulation D isn’t enough if you don’t file on time. Your first “sale” only occurs when an investor is completely under contract to provide funding. This timeline refers to 15 business days. If your filing deadline expires on a holiday, Saturday or Sunday, you must have it in by the following business day.
SEC Form D and Private Placements
Regulation D governs private placements of securities. A private placement is a capital raising event that involves the sale of securities to a relatively small number of select investors. These investors are often accredited and can include large banks, mutual funds, insurance companies, pension funds, family offices, hedge funds, and high and ultra-high net worth individuals. As these investors usually have significant resources and experience, standards, and requirements for a private placement are often minimal – in contrast with a public issue. In a public issue or traditional IPO, the issuer (private company going public) collaborates with an investment bank or underwriting firm. This firm or syndicate of firms helps determine what type of security to issue (e.g., common and/or preferred shares), the amount of shares to issue, the best offering price for the shares, and the perfect time to bring the deal to market. As traditional IPOs are often purchased by institutional investors (who then are able to allocate portions of shares to retail investors), it is critical that such public issuances provide thorough information to help less experienced investors fully understand the potential risks and rewards of partially owning the company.
Steps to File Form D
If filing Form D, you must do so online. Here are the steps you’ll need to take.
• Get CIK number and access codes. This must be done by giving information to the SEC’s Filer Management page. You must also have a Form ID notarized and submitted.
• Log into the SEC’s electronic gathering, analysis and retrieval (EDGAR) system page. You’ll only have an hour after logging in to finish Form D, so fill out a paper version first for reference.
• By clicking “Submit,” your Form D will be filed.
• Check to see if your state requires you to submit a Form D for their records. This information can be found on the SEC webpage.
SEC Form D Amendments
When a company decides to raise capital, the company must file Form D giving notice of an exempt offering of securities with the Securities and Exchange Commission. Commission rules require the notice to be filed by companies and funds that have sold securities without registration under the Securities Act of 1933 in an offering based on a claim of exemption under Rule 504, 505 or 506 of Regulation D or Section 4(5) of that statute. Companies and funds must file their Form D amendments with the SEC online using the SEC’s EDGAR (electronic gathering, analysis and retrieval) system.
Form D Amendments Filing
A Form D filer should review the following guidance in determining whether it should file an amendment to a previously filed Form D notice:
• A filer may file an amendment to a previously filed notice at any time.
• A filer must file an amendment to a previously filed notice for an offering:
o to correct a material mistake of fact or error in the previously filed notice, as soon as practicable after discovery of the mistake or error;
o to reflect a change in the information provided in the previously filed notice, except as provided below, as soon as practicable after the change; and
o annually, on or before the first anniversary of the most recent previously filed notice, if the offering is continuing at that time. For example, if the Form D was filed for a hedge fund, the fund will need to file a Form D each year because most hedge funds have continuous offerings.
When Amendment is not required?
A filer is not required to file an amendment to a previously filed notice to reflect a change that occurs after the offering terminates or a change that occurs solely in the following information contained in a previous Form D notice or amendment:
• the address or relationship to the issuer of a related person identified;
• an issuer’s revenues or aggregate net asset value;
• the minimum investment amount, if the change is an increase, or if the change, together with all other changes in that amount since the previously filed notice, does not result in a decrease of more than 10%;
• any address or state(s) of solicitation for a person receiving sales compensation;
• the total offering amount, if the change is a decrease, or if the change, together with all other changes in that amount since the previously filed notice, does not result in an increase of more than 10%;
• the amount of securities sold in the offering or the amount remaining to be sold;
• the number of non-accredited investors who have invested in the offering, as long as the change does not increase the number to more than 35;
• the total number of investors who have invested in the offering; and
• the amount of sales commissions, finders’ fees or use of proceeds for payments to executive officers, directors or promoters, if the change is a decrease, or if the change, together with all other changes in that amount since the previously filed notice, does not result in an increase of more than 10%.
What happens if you fail to file amendments to Form D?
Failing to file can expose your company to liability in two areas:
• By not adhering to Regulation D’s requirements for use of the private placement safe harbour; and
• By deceiving investors with outdated/untrue information in violation of the antifraud provisions.
What Happens If I Forget To File My Form D?
The most common exemptions from registration for both public companies and private companies seeking to go public are those provided by Regulation D of the Securities Act of 1933, as amended (“Securities Act”). Many issuers who go public do not realize that the filing of a Form D with the Securities and Exchange Commission (the “SEC”) is required in Regulation D offerings. Form D is a notice of an exempt offering of securities in reliance upon Regulation D (or Section 4(6) of the Securities Act). Form D requires specific information about the issuer and the offering it is conducting. This information includes
• the issuer’s identity,
• its principal place of business and contact information,
• its state of domicile,
• the names and addresses of its executive officers and directors,
• the specific exemption claimed under the Securities Act, and
• the identity and contact information of any broker-dealer, finder or other person receiving any commission or other similar compensation relating to the sale of securities in the offering.
Failure to File Form D
Issuers relying upon Regulation D are required to file a Form D; however, it is not a condition to qualify for the Regulation D exemption. The SEC has stated that the failure to file a Form D will not result in the loss of the exemption provided by Regulation D. The SEC provides guidance on an issuer’s failure to file Form D in Question 257.07 of its Securities Act Rules. Under Rule 507 of Regulation D, the SEC can take action against the issuer that fails to file a Form D, having the issuer enjoined from future use of Regulation D. In some instances, if the violation of Regulation D is willful, it could also constitute a felony. Issuers should not ignore the requirement to file a Form D even though it is not a condition of the Regulation D exemptions. In litigation against issuers arising from Regulation D, the filing of a Form D may serve as a mitigating factor to show compliance or attempted compliance with Regulation D, particularly when there is a fraud allegation. Additionally, a Form D filing is required by most states in order to comply with their exemption from registration. As such, any company conducting an offering in reliance upon Regulation D should consult with securities counsel prior to accepting investor funds.
Securities Law Attorney
When you need a securities lawyer, please call Ascent Law LLC for your free consultation (801) 676-5506. We want to help you.
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