Business Law | Why Choose Regulation D Private Placement?

Why Choose Regulation D Private Placement?

March 11, 2021

At Calkins Law Firm we often work with early stage and growth businesses as they raise money, search for investors, and plan to issue securities. We also find ourselves spending time explaining the logic behind a Regulation D private placement recommendation, since clients always ask, “Why?”

A private placement of securities is one that doesn't involve a public offering. So unlike an IPO that is funded by investment banks and made available for sale on the open market, private placement offerings release securities for sale to accredited investors only. Capital can be raised through the sale of equity or debt securities but these don’t need to be registered with the SEC. Though many other regulatory requirements and safe harbor rules still apply.

Here’s why we so often recommend opting for Regulation D offerings. All in all they have a great deal of merit. They require full disclosure about the company that’s up for offer, including any and all relevant risks – that’s just common sense. Investors are then fully informed and aware of the mechanics of the offering well before they invest. This way investors can honestly determine if they are in a position to fully understand, appreciate, and withstand the risks of a speculative and illiquid investment. So there’s no fear that they will later assert that they didn't know what they were getting involved in. 

Full disclosure is the only logical choice, especially for an early stage or growth business. The one downside we see is that a full-blown private placement pursuant to Regulation D can cost a fair bit of money. Some businesses may choose to dispense with the formality and expense.

But regardless of what a company decides, we invariably recommend that businesses issuing securities follow the basic guidance and mandates of the Regulation D private placement safe harbor. This is true whether or not they choose to follow all of the other formalities. And it’s especially important when the accredited investors are family, friends, and other acquaintances that business owners hope to have good relations with in the future.

Trustworthy Business Law Advice

When you’re getting a company off the ground, solid advice is vital to success. At Calkins Law Firm we rely on our comprehensive business and legal experience to advise clients, always looking for their best interests. If you’re developing an idea into a company and aren’t sure of the best way forward, call on us. We’ll be here for you as you grow.

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