Regulation D Rule 505 Private Placement

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We understand the need for business to raise capital, because we’re business people.

We also happen to be Private Placement Lawyers in Florida.

We can take the worry and work out of your capital requirements, leaving you to do the things that you do excellent – launch or run a business.

A popular vehicle for raising capital is a Regulation D 505 Exemption Private Placement Memorandum and subscription documents.  Some people that come to us are experts in the process, while others begin a consultation with the question, “What is private placement?”

Private Placement

Rule 505 of Regulation D allows is an exemption from the registration requirements of the federal securities laws which is available to qualifying companies.  The exemption allows for the raising of private capital via a memorandum offering which does not require Securities Exchange Commission Registration.

In general, to raise money via a private placement memorandum in Florida under a Rule 505 private placement, a company may offer and sell up to $5 million of its securities in any 12-month period. Securities may come in the form of both debt and equity based units.

The Limitations

However, there are significant limitations place upon Regulation D Rule 505 private placements. First, a company may sell only to as many as 35 “unaccredited investors.” However, an unlimited amount of “accredited investors” is allowed. An accredited investor is defined by the Securities and Exchange Commission (SEC). In the most simple sense, accredited investors as persons who do not need to satisfy the sophistication or wealth standards set forth by securities law for investment.

Further, the offeror must inform purchasers that they will receive “restricted” securities, meaning that the securities cannot be sold for at least a year without registering them. However, there are exceptions to this requirement.

The offeror cannot use general solicitation or advertising to sell the securities. Thus, there is significant limitation and drawback on marketing abilities.

There are also requirements that can get tricky for first time users of the 505 exemption.  For example, companies must give non-accredited investors disclosure documents that generally are the same as those used in registered offerings. However, Rule 505 allows companies to decide what information to give to accredited investors, so long as it does not violate the anti-fraud prohibitions of the federal securities laws.  However, if a company provides information to accredited investors, it must make such information available to non-accredited investors as well.

The company must also be available to answer questions by prospective purchasers, and financial statements need to be certified by an independent public accountant. In addition, while companies using the Rule 505 exemption do not have to register their securities, and generally do not have to file reports with the Securities Exchange Commission, companies must file a “Form D” after the first sale of their securities. Form D is a notice that includes the names and addresses of the company’s owners and promoters.

These regulations can sound daunting, especially in light of the fact that you’ll have to jump through all these hoops while launching and managing your business.  We understand, because our Regulation D Rule 505 Lawyers have been in your shoes, not only as attorneys, but as business people.

Our Private Placement lawyers in Florida have been consulted, drafted, and raised capital for companies via private placements in numerous industries including hospitality, entertainment, gaming, and others.

Our South Florida based business law attorneys serve clients in Palm Beach County, Broward County, Miami Dade County, and throughout Florida.

If you’re interest in learning more about raising money for your company, please contact us.

We want to hear your story and share ours.

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