Not every deal is a registered public offering. This lesson covers private sales and their resale limits, what public companies must keep reporting, and the rules for mergers, tender offers, loans and bankruptcy.
The private offering regulations start with exempted transactions under Securities Act Section 4: 4(a)(1) covers trades by anyone other than an issuer, underwriter or dealer; 4(a)(2), private issuer offerings; 4(a)(4), unsolicited brokers' transactions; and 4(a)(5), issuer sales solely to accredited investors, up to $5 million.
Wealthy or sophisticated buyers can bargain for the information registration provides, so the SEC lets issuers sell to them without a registered prospectus. Regulation D adds safe harbors:
- Rule 501: Sets the definitions and terms used in Regulation D, including the accredited investor: net worth over $1 million excluding the home, or income over $200,000 ($300,000 joint) in...
- Rule 502: Sets the general conditions to be met under Regulation D: disclosure to non-accredited Rule 506(b) buyers, no general solicitation except under Rule 506(c) and state-registered Rule 504 deals...
Common mistakes
- Using the old 13D clock. It's now five business days.
- Filing on Schedule 13E-4. Issuer tender offers file on Schedule TO.
- Mixing private placement clocks. Rule 5122 is at or before first use; Rule 5123 and Form D allow 15 calendar days.
Bottom line
- Rule 504 allows $10 million in 12 months, Regulation A Tier 1 $20 million and Tier 2 $75 million; Rule 506(c) permits general solicitation only with verified accredited buyers.
- Rule 5122 filing is due at or before first use, with at least 85% of proceeds for business purposes; Rule 5123 filing is due within 15 calendar days of first sale.
- Rule 144 holds restricted securities six months if the issuer has reported for 90 days before the sale, otherwise one year; affiliates also face the volume limit, and Form 144 above 5,000 shares or $50,000 in three months.
- Tender offers stay open at least 20 business days, and at least 10 business days after a change in price, amount sought or soliciting fee; targets respond within 10 business days; issuer tender offers file on Schedule TO.
Exam shortcut
"At or before first use" is Rule 5122; "within 15 calendar days" is Rule 5123 and Form D. Tender offer, Form 4 and 13D clocks count business days; HSR, Form D, Rule 5123 and Forms 3 and 5 count calendar days. For what protects the firm, pick the documented control.
The full lesson (about 3,794 words, 25 min read) adds 2 worked examples, all 5 common mistakes, a self-check, free in the app.
Learning objectives
- E16
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