SEC Form D: What You Should Know

Researching private company offerings? The SEC Form D is the primary filing companies submit to the Securities and Exchange Commission to disclose certain private placements and exempt securities offerings, typically made to accredited or institutional investors rather than the general public. While it is not as well-known as Form 10-K or Form 10-Q, Form D provides valuable information on hard-to-research private companies. Like every SEC filing, Form D is public. You can use it to find anything from where the issuer is located to what portion of the investments will go toward marketing. You may also find red flags, like an unrealistic budget, that you would never see in other documents.

What Is Form D?

Form D is a notice filing for private offerings that companies must file with the Securities and Exchange Commission (SEC) when they sell securities without registering them. It provides basic information like the issuer’s name and the type of security offered. Usually, companies must register securities under the Securities Act of 1933 through a Form S-1, which requires companies to give the SEC and the public significant information, like audited financial statements and a company description. However, the SEC security registration process is expensive and time-consuming, so there are exemptions listed in Regulation D. These exemptions let smaller companies sell securities even if they do not have the funds to register.

Note: A Form D filing is a notice filing that lets the SEC track exempt offerings, not an approval or disapproval of the offering.

When Is Form D Filed?

Issuers must file Form D within 15 calendar days after the first sale of securities. The due date will be moved to the next business day if it is on a weekend or holiday. The “first sale” starts when the buyer becomes irrevocably committed to the transaction. For example, if an investor signed up for a subscription to a tech startup on May 1st but did not wire the funds until May 4th, the first sale date would be May 1st. Although they did not exchange money until later, the investor became legally bound to complete the transaction on May 1st. The tech start-up would then have until May 16th to file Form D.

Who Files Form D?

Any entity that wants to sell securities without registering must file Form D. They tend to be smaller, private companies like startups, but can also be larger public companies, hedge funds, real estate syndications, and crowdfunding issuers. Any sale of unregistered securities requires a Form D filing, even if there is just one buyer. A crowdfunding with a single accredited investor would still have to file Form D online using the SEC’s EDGAR system.

Form Contents

Form D is short compared to heftier 10-K filings and some registration statements. It has nine parts and contains key information that is relevant to both regulators and investors:

• Basic information about the issuer: Name, address, phone number, and jurisdiction of incorporation.
• Basic information about the business: Entity type (corporation, business trust, etc.), industry group, and principal place of business.
• Related persons: Names and titles of executive officers, directors, and promoters.
• Issuer size: The issuer must disclose its revenue or aggregate net asset value range.
• Federal exemptions and exclusions claimed:The specific rules, such as Rule 504(b) or Rule 506(c), and sections claimed.
• Offering details:
  • Type of security offered (e.g., equity, debt, or option)
  • Size of the offering or the total amount intended to be raised
  • Amount raised so far
  • Use of proceeds (e.g., debt repayment, salaries, general working capital)
• Minimum investment accepted: The smallest amount an investor can contribute.
• Sales Compensation: Names and addresses of any brokers or dealers involved.
• Investors:
  • Number of participating investors
  • Whether or not the investors are non-accredited.
  • Non-accredited investors are limited under Rule 506(b) and not allowed under Rule 506(c).

Tip: Pay attention to the “estimate” box. If it is checked, the figure is not exact.

Example Form D Snapshot

Rule 504 vs. Rule 506

Issuers file Form D using two main exemptions: Rule 504 and Rule 506 (as of now, Rule 505 is defunct). Rule 504 is best for smaller offerings since it has no limit on the number or type of investors, but it does not allow public advertising. However, it has a low cap of $10 million, and the exemption only lasts 12 months. Very early-stage startups and small businesses often use Rule 506 since they can have many different kinds of investors make smaller investments.

Rule 506 lets issuers raise an unlimited amount of capital, but it has restrictions on the number and type of investors. From there, it splits into Rule 506(b) and 506(c) depending on whether the issuer wants to market to the general public. Rule 506(b) does not allow general solicitation, but does allow up to 35 non-accredited investors. If the issuer sells to non-accredited investors, it must provide a detailed disclosure. Rule 506(c) does not require a detailed disclosure because it does not allow non-accredited investors. However, it does require the issuer to take “reasonable steps” to verify their investors’ accredited status. Rule 506(c) also allows general solicitation. You can raise unlimited amounts under Rule 506 to unlimited accredited investors.

Regulation D and Blue Sky Laws

While Regulation D lets issuers sell securities without registering them with the SEC, issuers still need to follow the blue sky filing requirements in their home state and any state in which they wish to do business. State security or blue sky laws vary from state to state and exemption to exemption. An issuer selling securities in California using Rule 504 would encounter a very different set of laws than an issuer selling securities in Idaho using Rule 506(b).

The National Securities Markets Improvement Act of 1996 (NSMIA) designates Rule 506 offerings as “covered securities.” States cannot set substantive requirements, like a long registration process, for these covered securities. When filing using Rule 506, the state may require:

• A state-specific notice filing form
• Filing fees
• A copy of Form D

However, Rule 504 offerings are not covered securities under the NSMIA. States can set substantive requirements or stay with the bare minimum. When filing using Rule 506, the state may require:

• A merit review
• Exemption filings
• Full registration with the state
• Financial statements

Because of this variability, investors and issuers alike should pay close attention to applicable blue sky laws. Breaking one of these laws can trigger a fine or even a lawsuit and put your investment in the red overnight.