Regulation D contains the rules that apply to the overwhelming majority of private securities sales in the United States. As previously discussed, Regulation D is a safe harbor under Section 4(a)(2) of the Securities Act, which permits offers and sales of securities “not involving any public offering.”

Regulation D consists of eight rules with four specific exemptions.

Rule 501 defines the key terms used throughout Regulation D.

Rule 502 sets out general conditions that apply in varying degrees to all of the Regulation D Exemptions.

Rule 503 describes the procedure for filing notice with the SEC that your company is making a private offering under Regulation D. Private placements are private in the sense of “invite only,” not in the sense of “secret.” A notice filing on Form D is required and will be made available to the public once processed. You may also have to file the Form D with any state where you’re selling securities, but that’s a topic for another post.

Rules 504, 505, and 506 set out the four safe-harbor exemptions from registration.

Rule 504 exempts transactions under $1,000,000 while Rule 505 exempts transactions under $5,000,000.

The big drawback to both Rule 504 and 505 is that neither rule supersedes state laws. So any transaction under 504 or 505 must also be registered or exempt under the laws of each individual state in which an offer or sale is made. This can get complicated, and in some situations may preclude reliance on Rule 504 or 505.

Rule 506 is more broad, and was amended by the JOBS Act to include two exemptions.

Rule 506(b) is the most commonly used of all the private placement exemptions. It permits sales of an unlimited dollar amount to an unlimited number of accredited investors, provided, among other things, that the offerings were private–that is, not generally solicited. A Rule 506(b) offering may also include up to 35 non-accredited investors. But additional requirements under Rule 502 apply to any deal involving non-accredited investors.

Rule 506(c) was created by the JOBS Act, and provides for private placements by general solicitation—a new concept to the world of securities. Rule 506(c) allows issuers to publicly promote and advertise their “private placements,” so long as all of the actual investors are accredited. Under this approach, the issuer is obligated to ensure that all investors really are accredited. This may require extensive verification measures that will make some investors uncomfortable.

Rule 506(d) contains “bad actor” provisions which preclude reliance on Rule 506 if any issuer, or any director, officer, or 20% vote holder of the issuer, has ever been enjoined from, or prosecuted for, a range of securities and fraud infractions.

Rule 507 blocks an issuer that has been enjoined for failure to make a notice filing under Rule 503 from using Regulation D at all.

Rule 508 provides that if an issuer makes a small mistake in an otherwise good-faith Regulation D offering, the offer won’t be shot. But the SEC can still bring an action. Rule 508 excludes a lot of what ordinary business folks would consider “minor.” It is narrow relief.