Private Securities Offerings: Raising Capital While Navigating Regulatory Requirements

Private investors can provide financing without a traditional registered public offering. Companies must evaluate securities-law obligations before approaching potential investors, because the method of solicitation and the investor population can affect the availability of an exemption.

An issuer may sell ownership interests or other securities without registering the offering when an applicable exemption is available. Regulation D is a common federal framework, but the requirements depend on the specific exemption selected.

Rule 506(b) generally prohibits general solicitation. Rule 506(c) permits general solicitation when all purchasers are accredited investors and the issuer takes reasonable steps to verify accredited status. An issuer should evaluate its fundraising communications before making public statements or soliciting prospective investors.

Offering documentation often includes subscription agreements, investor questionnaires, operating agreements or other governing documents, and disclosures addressing material investment risks. These documents help define ownership, governance, economic rights, transfers, distributions, and potential exit arrangements.

An exemption from registration does not eliminate antifraud obligations. Material representations must be accurate and must not omit information necessary to prevent statements from being misleading in context. Issuers should coordinate federal and applicable state notice filings and assess whether additional regulatory obligations apply.

Legal counsel can help determine the appropriate structure, prepare and negotiate offering documents, review investor communications, evaluate disclosure obligations, and coordinate applicable filings. A thoughtful legal process should begin before outreach, not after investors have already been solicited.

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For advice on a specific business transaction or legal issue, contact Alex Nahai Law to discuss the relevant documents and circumstances.

This article is for general informational purposes only and is not legal advice. Reading it does not establish an attorney-client relationship.