A Review of Regulation D: The Present Exemption Regimen for Limited Offerings Under the Securities Act of 1933

Abstract:     
In response to substantial criticism regarding the effect that compliance with federal securities laws was having on small businesses, the Securities and Exchange Commission (SEC) promulgated Regulation D, which consists of six rules that exempt certain limited offerings of securities from registration with the SEC, as generally required by section 5 of the Securities Act of 1933. The primary purposes of the SEC’s implementing Regulation D were to simplify and to clarify the existing limited offering exemptions from registration, to expand the availability of these exemptions, and to achieve uniformity between state and federal exemptions in order to facilitate capital formation consistent with the goal of investor protection under the 1933 Act. Instead of developing new regulatory concepts through careful analysis of previous experience, the SEC has reworked and retooled a highly criticized and fragmented exemption into an equally complex and potentially unreliable unified regulation. This article describes the principal characteristics of each of the substantive exemptions, rules 504, 505 and 506. The generally applicable definitions, terms, and conditions, set forth at rules 501, 502, and 503, are addressed in the context of their application in order to illustrate which of the substantive exemptions is most appropriate to a particular offering. The article then critiques the major defects in the regulation’s exemption scheme.

Number of Pages in PDF File: 36

Keywords: federal securities laws, Securities and Exchange Commission, Regulation D, exemptions, limited offerings, Securities Act of 1933, registration, investor protection, Rule 504, Rule 505, Rule 506

JEL Classification: G3, G10, G18, G28, G30, G34, G38, K2, K20, K22

working papers series