Regulation D Subscription Agreement – What You Need to Know
If you`re an entrepreneur in search of funding for your business, one option to consider is a Regulation D (Reg D) offering. Reg D is a federal exemption that allows companies to privately sell securities to accredited investors, bypassing the need to register with the Securities and Exchange Commission (SEC).
To raise capital through a Reg D offering, a company must create and distribute a subscription agreement to prospective investors. This agreement outlines the terms and conditions of the investment and helps ensure compliance with SEC regulations.
Here are some key points to keep in mind when creating a Reg D subscription agreement:
- Know your investors: Reg D offerings are limited to accredited investors, who are defined by the SEC as individuals with a net worth of at least $1 million or annual income of at least $200,000. Make sure your subscription agreement includes language confirming that the investor meets these qualifications.
- Describe the investment: Your subscription agreement should clearly explain the type of security being offered, the offering amount, and any minimum investment requirements. It`s also a good idea to include a summary of the risks associated with the investment, such as market volatility or regulatory changes.
- Specify the terms: The agreement should detail the terms of the investment, such as the duration, interest rate, and payment schedule if applicable. You should also include any restrictions on transfer or resale of the securities.
- Include legal disclosures: Reg D offerings are subject to certain legal requirements, such as the need to provide a disclosure document known as a Private Placement Memorandum (PPM). Your subscription agreement should reference the PPM and any other necessary legal disclosures.
- Provide signature lines: Make sure your agreement includes signature lines for both the company and the investor, as well as a date line.
As you develop your Reg D subscription agreement, keep in mind that it`s important to work with an experienced securities attorney to ensure compliance with all applicable regulations. With the right preparation and legal guidance, a Reg D offering can be an effective way to raise capital for your business.