Thinking About Raising Capital For You Real Estate Investments

[Nate Marshall]

Navigating Regulation D: Raising Capital and SEC Compliance for Accredited Investors 

Introduction: Raising capital is a critical aspect of business growth, and for many entrepreneurs, Regulation D of the Securities Act of 1933 is a key tool in this process. This regulation provides exemptions from the stringent registration requirements imposed by the Securities and Exchange Commission (SEC), making it easier for businesses to attract investment. In this article, we will explore the nuances of Regulation D, focusing on exemptions (B) and (C), the current qualifications for Accredited Investors, and touch upon state-level considerations, including filing fees and the North American Securities Administrators Association (NASAA).

Regulation D Exemptions (B) and (C): Regulation D offers three main exemptions, but exemptions (B) and (C) are the most commonly used for private placements. Exemption (B) allows for the sale of securities to an unlimited number of accredited investors and up to 35 non-accredited investors. Exemption (C), on the other hand, permits the sale of securities to an unlimited number of accredited investors but prohibits the inclusion of any non-accredited investors. 

Accredited Investor Qualifications: As of my knowledge cutoff in January 2022, the SEC's definition of an accredited investor includes individuals who meet one of the following criteria:

Income Test: An individual with an annual income exceeding $200,000 (or $300,000 for joint income) in each of the two most recent years and a reasonable expectation of the same income level in the current year..

Net Worth Test: An individual with a net worth exceeding $1 million, either individually or jointly with a spouse, excluding the value of the primary residence.

Entity Test: Certain entities, including banks, partnerships, corporations, and charitable organizations, with assets exceeding $5 million. It is important to verify the most up-to-date criteria, as the SEC may periodically adjust these thresholds.

State-Level Considerations and NASAA: While Regulation D provides a federal exemption, businesses must also consider state securities laws. Each state has its own regulatory body, and businesses may need to file a notice or registration statement and pay filing fees to offer securities in those states. The North American Securities Administrators Association (NASAA) plays a crucial role in coordinating state securities regulation. Entrepreneurs should be aware of NASAA guidelines and communicate with state regulators to ensure compliance on both federal and state levels. Filing Fees and State Regulators: Filing fees for state registrations vary and depend on the state's requirements. These fees cover the cost of processing registration applications and are typically based on the total offering amount or the number of investors within the state.

Conclusion: Successfully raising capital while complying with SEC regulations under Regulation D requires careful consideration of the exemptions, qualifications for accredited investors, and adherence to state-level requirements. Entrepreneurs should stay informed about changes in regulations, regularly consult legal professionals, and maintain open communication with both federal and state regulators to navigate the complexities of capital fundraising within the bounds of the law.