Private Securities Offering Exemptions — Regulation D, Reg A+, and Reg CF

Selling securities to raise money is generally illegal without first registering with the SEC (see Securities Regulation) and complying with Sarbanes-Oxley reporting requirements — a process that costs hundreds of thousands of dollars and takes months. The Securities Act of 1933 created several exemptions from this registration requirement that allow companies to raise capital privately, and the SEC has expanded those exemptions through rules under Section 4(a)(2), Regulation D, Regulation A+, and the JOBS Act's Regulation CF crowdfunding rules. Together, these exemptions allow startups, small businesses, real estate funds, and private investment vehicles to raise capital from investors without a full public registration — but with limits on who can invest, how much can be raised, and whether securities can be publicly advertised. Understanding which exemption applies determines who you can sell to, how much you can raise, whether you can advertise, what disclosures you must make, and when and whether investors can resell their shares.

Current Law (2026)

Legal Authority

• 15 U.S.C. § 77d(a)(2) — Private offering exemption: the registration requirements of the Securities Act do not apply to "transactions by an issuer not involving any public offering" — this is the statutory basis for all private placements; the SEC has defined what constitutes a "public offering" through the rules and interpretations discussed below
• 15 U.S.C. § 77d(a)(6) / § 77d-1 — Crowdfunding (Regulation CF): transactions meeting crowdfunding requirements (through a registered broker or funding portal, aggregate annual offering limit, investor disclosure requirements) are exempt; § 77d-1 specifies intermediary requirements — portals must register with the SEC as a "funding portal" and become members of FINRA
• 15 U.S.C. § 77c(b) — Regulation A exemption: the SEC may conditionally exempt smaller offerings from the full registration requirements, establishing the statutory basis for Regulation A and Regulation A+ (which the SEC implemented in tiers allowing up to $20M and $75M offerings respectively)
• SEC Rule 506(b) (17 C.F.R. § 230.506(b)) — The most widely used private offering exemption; permits sales to unlimited accredited investors and up to 35 "sophisticated" non-accredited investors; prohibits general solicitation or advertising; requires reasonable belief that investors can evaluate the investment; no SEC-mandated disclosure document (though advisable)
• SEC Rule 506(c) (17 C.F.R. § 230.506(c)) — Added by the JOBS Act (2012); permits general solicitation and advertising; restricts sales to accredited investors only; requires issuers to take "reasonable steps to verify" accredited investor status (bank statements, tax returns, letters from CPAs, or third-party verification)

Implementing Regulations

The SEC regulations implementing the Securities Act crowdfunding exemption are at 17 CFR Part 227 (Regulation Crowdfunding). Key provisions:

• § 227.100 — Eligibility requirements: the issuer must be a U.S. company (not a reporting company, investment company, or blank-check company); the aggregate amount sold to all investors in any 12-month period may not exceed $5 million; each investor's investment in all Reg CF offerings in a 12-month period is capped by income/net worth tiers
• § 227.201 — Disclosure requirements: issuers must provide on Form C (1) a description of the business and its financial condition, (2) the intended use of proceeds, (3) the offering price and terms, (4) ownership and capital structure, (5) related-party transactions, and (6) risk factors; issuers that have raised under $124,000 must provide tax-return-based financials; issuers raising $124,000–$618,000 must provide CPA-reviewed financials; issuers raising above $618,000 must provide audited financials
• § 227.202 — Ongoing reporting: after a Reg CF offering, the issuer must file annual progress reports with the SEC and post them on its website; the ongoing obligation continues until the company becomes a reporting company, is acquired, liquidates, or has fewer than 300 shareholders of record
• § 227.203 — Form C filing: the offering statement (Form C) must be filed with the SEC through EDGAR and posted on the funding portal or broker platform at least 21 calendar days before any securities are sold; amendments (Form C/A) are required if the information becomes materially inaccurate
• § 227.204 — Advertising restrictions: issuers may only advertise a Reg CF offering through notices that direct investors to the funding portal; the notice may state only the name of the issuer, the offering terms, and a link to the portal — detailed pitch materials must remain on the portal page, not in advertisements
• § 227.300 — Intermediary requirements: every Reg CF offering must go through either a registered broker-dealer or a SEC-registered funding portal; the intermediary must vet issuers, provide investor disclosures, and maintain communications channels on the platform
• § 227.301 — Fraud reduction obligations: the funding portal must have a reasonable basis to believe the issuer is not subject to disqualification (the "bad actor" check), that the offering is not part of a scheme to defraud investors, and that the issuer has responded to all requests for additional information
• § 227.304 — Cancellation rights: any investor may cancel an investment commitment for any reason until 48 hours before the offering deadline; after that cutoff the commitment is binding unless the portal elects to allow later cancellations
• § 227.400 — Funding portal registration: a funding portal must register with the SEC and join FINRA; once registered, it is exempt from full broker-dealer registration but subject to Part 227 compliance obligations, recordkeeping (§ 227.404), and FINRA oversight
• § 227.501 — Resale restrictions: securities sold under Reg CF may not be resold for 12 months after the date of sale, with exceptions for resale to the issuer, to accredited investors, or as part of a registered offering; this lock-up is the primary liquidity limitation for early crowdfunding investors
• § 227.503 — Disqualification ("bad actor") provisions: Reg CF exemption is unavailable if the issuer, any director, executive officer, 20%+ shareholder, or promoter has been convicted of a securities fraud felony, is subject to a SEC order, or has been found liable in a securities fraud civil suit within the past 10 years

Reg CF runs alongside the Regulation D rules at 17 CFR Part 230 (Rules 501–508), which govern the accredited-investor-based exemptions (Rule 506(b) and 506(c)) that dominate the private capital market. Unlike Reg D, Reg CF requires SEC pre-filing and intermediary involvement for every offering — it is more regulated but accessible to non-accredited investors. The Regulation A+ rules are at 17 CFR Part 230 Rules 251–263, which use a different "offering statement" format (Form 1-A) with a longer SEC review period.

The securities exemptions in Part 230 also govern the secondary market for privately-placed securities — the exit routes through which investors can eventually sell restricted and control shares. These secondary-market rules are where the private offering lifecycle connects back to public markets:

• Rule 144 (§ 230.144) — the primary safe harbor for resale of "restricted securities" (purchased in private placements) and "control securities" (held by affiliates regardless of how acquired). A seller relying on Rule 144 is deemed not an underwriter and may sell without registration if all conditions are met:

  • Current public information: the issuer must have been a reporting company current in SEC filings for at least 12 months (or 90 days for non-reporting issuers under certain conditions)
  • Holding period: non-affiliates must hold restricted securities for at least 6 months (if the issuer is a current SEC reporting company) or 12 months (for non-reporting issuers); affiliates must meet the same holding period for restricted shares plus the additional volume/manner conditions below
  • Volume limitations (affiliates only): in any 90-day period, the number of shares sold may not exceed the greater of (1) 1% of the class outstanding, or (2) the average weekly trading volume reported during the preceding 4 calendar weeks; these limits apply separately to each class of security
  • Manner of sale (affiliates only): sales must be broker transactions (broker executes in the ordinary course of business without soliciting orders) or directly with a market maker; affiliates may not solicit buyers
  • Form 144 notice: when an affiliate plans to sell more than 5,000 shares or $50,000 worth in any 3-month period, a Form 144 must be filed with the SEC concurrently with or before the first sale

  Non-affiliates who have held restricted shares for 12 months or more may sell any amount without volume limits, manner-of-sale restrictions, or Form 144 filing — Rule 144's conditions only matter during the 6- to 12-month window and for affiliates at any time. The 2008 SEC amendments shortened the holding period for shares of reporting companies from 12 months to 6 months.

• Rule 144A (§ 230.144A) — the institutional secondary market safe harbor, allowing resale of restricted securities (originally offered under Rule 144A or other private offering exemptions) without SEC registration, provided the buyer is a Qualified Institutional Buyer (QIB). A QIB is generally an institution that owns and invests (on a discretionary basis) at least $100 million in securities of unaffiliated issuers — the category includes insurance companies, registered investment companies, pension funds, banks, savings institutions, and broker-dealers. Registered broker-dealers qualify at the $10 million threshold. Rule 144A is the operating infrastructure of the institutional bond market: investment-grade and high-yield bonds are routinely issued in private placements exempt from registration and immediately resold to QIBs under 144A, then later "registered for exchange" (an S-4 or A-1 registration offering identical registered securities in exchange for the 144A bonds — the "144A for life" vs. "registered exchange" distinction). Rule 144A is not available for securities of the same class as those listed on a national securities exchange (it's a private-market tool only).

• Regulation S (Rules 901–905) — provides that the registration requirements of the Securities Act do not apply to offers and sales made in offshore transactions where no directed selling efforts are made in the United States. An "offshore transaction" requires that the offer is not made to a person in the US, and at the time of the buy order, the buyer is outside the US (or the seller reasonably believes so). "Directed selling efforts" prohibits advertising, mail campaigns, or road shows targeted at US persons. Regulation S is organized in three categories by issuer type:

  • Category 1: Foreign private issuers whose securities have no substantial US market interest (typically foreign stocks with no US trading) — no resale restrictions; securities may flow back into the US immediately
  • Category 2: Reporting issuers' equity securities and debt securities of reporting and non-reporting issuers — 40-day "distribution compliance period" during which equity securities may not be offered/sold to US persons or for the account of US persons
  • Category 3: Equity securities of US domestic reporting issuers — 1-year distribution compliance period; during this period certificates must bear a legend and transfers to US persons are restricted; after the period, unrestricted resale in the US (including under Rule 144) becomes available

  Regulation S is the legal basis for most offshore fundraising by US companies — private placements to non-US investors, offshore bond programs, and international venture rounds typically rely on Reg S to avoid US registration even when the issuer is a US entity.

• Rule 147 / Rule 147A (§§ 230.147, 230.147A) — intrastate offering exemption, allowing companies to offer and sell securities exclusively within their home state without federal registration (securities regulation for intrastate offerings defaults to state securities laws). Rule 147 (the traditional exemption) requires: the issuer is incorporated or organized in the state; at least 80% of the issuer's gross revenues come from within the state; 80% of assets are located in-state; 80% of the proceeds are used in-state; and all purchasers are in-state residents. Rule 147 prohibits any general solicitation or offers to out-of-state persons. Rule 147A (adopted 2016) modernizes the exemption to permit general solicitation (including Internet advertising) but still requires all sales to be made only to in-state residents; the 80% tests remain. After purchase, Rule 147/147A securities may not be resold to out-of-state purchasers for 6 months. The intrastate exemption is the primary pathway for state-regulated equity crowdfunding and community investment platforms operating within a single state.

The Three-Tier Private Capital Market

Rule 506(b) — The Standard Private Placement: Most venture capital deals, angel rounds, private equity funds, hedge funds, and real estate LPs use Rule 506(b). Venture capital funds structured as SBICs also raise investor capital under these exemptions. There is no dollar cap. The issuer cannot advertise or generally solicit (no posting on Twitter, no public pitches to unrelated parties). The issuer can accept up to 35 "sophisticated" non-accredited investors who have "such knowledge and experience in financial and business matters that [they are] capable of evaluating the merits and risks" of the investment — but in practice, most 506(b) issuers only accept accredited investors to avoid the obligation to provide the more detailed disclosures required when non-accredited investors participate. The issuer must file a Form D with the SEC within 15 days of the first sale, disclosing the offering size, industry, and type of investors.

Rule 506(c) — The Advertised Private Placement: Enacted as part of the JOBS Act of 2012 (effective September 2013), Rule 506(c) allows issuers to advertise their offerings publicly — posting on social media, holding public events, running advertisements — but restricts the actual sale to verified accredited investors. The "verified" requirement is the key difference from 506(b): the issuer must take active steps to verify accredited status, not merely check a box on a subscription agreement. Acceptable verification methods include reviewing tax returns (for income-based accreditation), bank and brokerage statements (for net worth), letters from CPAs or attorneys, or using a third-party accredited investor verification service.

Regulation A+ — The "Mini-IPO": Regulation A+ allows companies to raise from the general public — including non-accredited investors — without a full IPO registration. Tier 1 allows up to $20 million per year with a streamlined SEC review; Tier 2 allows up to $75 million per year with more extensive SEC review and ongoing annual reporting requirements. Non-accredited investors in Tier 2 offerings are limited to investing no more than 10% of the greater of their annual income or net worth in any 12-month period across all Reg A+ offerings. Unlike Rule 506 offerings, Reg A+ securities are not "restricted" — they can be resold by investors immediately.

Regulation CF — Equity Crowdfunding: The JOBS Act created the equity crowdfunding exemption in 2012; the SEC finalized Regulation CF rules in 2015 (effective May 2016) and raised the cap from $1.07 million to $5 million in 2021. Any investor — accredited or not — can participate, but non-accredited investors face investment limits. In any 12-month period, a non-accredited investor whose annual income or net worth is less than $124,000 may invest the greater of $2,500 or 5% of the lesser of income and net worth. Non-accredited investors whose income and net worth both exceed $124,000 may invest up to 10% of the lesser, up to $124,000 total. All Reg CF offerings must be conducted through a registered funding portal (companies like Wefunder, Republic, StartEngine) or a broker-dealer registered with FINRA.

Accredited Investor Definition

The accredited investor definition (Rule 501 of Regulation D) gates who can invest in most private offerings. The key categories:

• Income test: $200,000/year in each of the two prior years ($300,000 for joint income with a spouse/spousal equivalent), with reasonable expectation of the same in the current year
• Net worth test: $1 million net worth, excluding the value of the primary residence (primary residence equity counts toward net worth only to the extent it exceeds mortgage debt)
• Professional certification: Holders of Series 65, Series 66, or Series 82 licenses; knowledgeable employees of a private fund who are knowledgeable about the fund's investments
• Entity tests: Trusts, LLCs, corporations with $5M+ in assets not formed for the specific purpose of making the investment; all-accredited-member entities; registered investment companies; banks; state-licensed insurance companies; employee benefit plans; certain family offices

The SEC expanded the accredited investor definition in 2020 to include professional certifications, recognizing that financial sophistication isn't only correlated with wealth. The income and net worth thresholds have not been adjusted for inflation since 1982 — a frequently debated policy issue.

How It Affects You

If you're a startup founder raising a seed or Series A round: Rule 506(b) is almost certainly your offering exemption. Work with a securities attorney to prepare a subscription agreement and private placement memorandum (PPM) before the first investor conversation. The PPM isn't legally required for 506(b) accredited-only offerings, but the disclosure obligation — providing material information to investors — creates significant liability risk without one. File Form D within 15 days of the first closing. Do not post about the round publicly, announce it on LinkedIn, or give interviews describing the fundraise before closing — these can constitute general solicitation, contaminating your 506(b) exemption. After the round closes, you can publicly announce it.

If you want to advertise your fundraise openly: Use Rule 506(c) — it permits general solicitation but requires verification of every investor's accredited status. Budget for a third-party verification service or coordinate with investors to collect tax returns or financial statements. Note that many institutional LPs and family offices prefer 506(b) offerings (the verification burden can be perceived as intrusive), so the market for 506(c) offerings is primarily retail high-net-worth investors, not institutional capital.

If you're raising a community round from your customers or fans: Regulation CF (equity crowdfunding) allows you to raise up to $5 million from anyone via registered portals. The platform (Wefunder, Republic, StartEngine, etc.) handles investor verification, payment processing, and regulatory compliance, charging a fee (typically 2–7% of amount raised). The tradeoff: the securities are "restricted" for 12 months but then freely resalable; you must provide disclosure documents (like Form C) to the SEC and all investors; and you're taking on potentially hundreds or thousands of small investors, which creates ongoing communication obligations and cap table complexity.

If you're an investor receiving an investment solicitation: A company offering you securities without registration must fit within an exemption. The most common legitimate scenarios: (1) a startup or fund offering via Rule 506(b) or 506(c) — you'll sign a subscription agreement and confirm accredited investor status; (2) a Reg CF offering via a registered portal — the portal is required to provide Form C disclosure; (3) a Reg A+ offering where you may see a formal offering circular. If a promoter is offering guaranteed returns, is unclear about the exemption being used, or asks you to wire money without a subscription agreement and disclosure document, these are warning signs of fraud. For the regulatory framework governing investment advisers managing private fund assets, see the Investment Advisers Act and Investment Company Act. Founders of qualifying C corporations should also consider the QSBS exclusion for capital gains tax benefits.

State Variations ("Blue Sky" Laws)

Rule 506 offerings are federally preempted from state securities registration under the National Securities Markets Improvement Act (NSMIA) of 1996 — states cannot require 506 issuers to register their offerings, though states can require a simple Form D filing and fee. Rule 504 offerings and Regulation A Tier 1 offerings remain subject to state securities laws ("Blue Sky" laws) and may require separate state registration or qualification in each state where securities are sold. Regulation A Tier 2 preempts state law for offerings sold to qualified purchasers.

Pending Legislation

Congress and the SEC have debated expanding the accredited investor definition, adjusting Reg CF offering limits, and creating new exemptions for small businesses. The SEC periodically updates Regulation D and Regulation A through rulemaking. Following the 2020 amendments, the next major open question is whether to further raise the Reg CF cap (above $5 million), whether to create a "micro-offering" exemption for very small raises without portal requirements, and how to update the accredited investor income/net worth thresholds for inflation.

Recent Developments

The SEC amended Regulation A in 2021 (effective March 2021) to increase the Tier 2 cap from $50 million to $75 million annually. The SEC's 2020 accredited investor definition expansion added professional certifications and spousal equivalents to the definition. The agency has been active in enforcement of crowdfunding intermediary obligations — several funding portals have been sanctioned for failing to adequately screen investors or issuers. The SEC proposed but did not finalize a "finders" rule in 2020 that would have created a limited exemption for individuals who introduce investors to issuers; the current legal status of unregistered finders remains unclear and a source of industry concern.