The Ultimate Guide to Financial Securities for 2020 Part 2

Typically, a security that is exempt from registration is restricted in some way. See the first post on Restricted Securities, but keep in mind that some exemptions provide for other restrictions.

Part 2: Federal Securities Registrations Exemptions

This is Part 2 of our informational series on Securities. There are also exemptions from registration in certain cases. Exempt issuers may not have to disclose any information. Typically, a security that is exempt from registration is restricted in some way. See the first post on Restricted Securities, but keep in mind that some exemptions provide for other restrictions. Generally with each exemption, the company will need to file Form D and will only be allowed to sell to Accredited Investors. Keep in mind, companies considered so-called “Bad Actors” cannot utilize these exemptions.

A so-called “Bad Actors”  is one who has certain criminal convictions, court injunctions or restraining orders, final orders of certain federal and state regulators, SEC disciplinary order, SEC cease and desist orders, and other financial or fraud-related violations.

Rule 504 Limited Offerings

This exemption, under Rule 504, allows companies to offer and sell up to $5 million of securities over a 12-month period without having to register with the SEC. However, the issuing company may not advertise the offering or engage in any sort of general solicitation to the public, all the investors must be preexisting contacts. Not all companies are eligible to utilize the 504 exemption. Investment companies, companies without a specific business plans, or ones with a business plan to engage in a merger or acquisition of an unidentified company may not utilize this exemption.

Rule 506(b) Private Placements

This exemption allows issuing companies to raise an unlimited amount of money and sell securities to an unlimited amount of accredited investors. However, the issuing company may not engage in general solicitation and must only offer the securities to preexisting contacts. Under this exemption, the company may sell to up to 35 non-accredited investors. The non-accredited investors must receive all the disclosures required in a registered security.

Rule 506(c) General Solicitation

Rule 506(c) allows companies issuing securities to raise an unlimited amount of money and sell securities to an unlimited amount of accredited investors. Under this exemption, an issuing company may also engage in general solicitation and advertisement.

Federal Intrastate Exemption 

This exemption from registering securities is aimed at facilitating the financing of local businesses. Companies offering and selling securities solely to residents within a single state or territory are exempt so long as the company is also a resident, doing business, or incorporated in the same state or territory and carries out a significant amount of its business in that state. There is no limit on the size of the offering, number of purchasers, or amount of money raised. The issuing company must obtain written representation from each purchaser proving they are a resident of the state. Generally, for the first six months, these securities can only be resold to residents of the same state.

Regulation Crowdfunding

In order for a security to be exempt from registration under this Regulation, the transactions must take place online through an SEC-registered intermediary. The intermediary may be a broker-dealer or a funding portal. The issuer can raise up to $1,070,000 in a 12-month period. Generally, these securities may not be resold for one year. Further, under this exemption, companies must provide all the disclosures required in a registered offering.

Rule 701 Employee Benefit Plan

Rule 701 exempts issuers who are providing securities as compensation to employees, consultants, and advisors. The issuer may “sell” up to $1 million dollars of securities, or more, depending on their assets or number of outstanding securities. If the issuer sells more than $10 million in any 12-month period, then they will be required to provide all the disclosures required in a registered offering.

Regulation A 

This exemption applies only to securities instituted by the Securities Act and not the Exchange Act. Securities instituted by the Securities Act include all securities that use the means and instrumentalities of interstate commerce. The Securities Exchange Act, on the other hand, governs secondary and aftermarket trading. Regulation A has two tiers of exemptions:

Tier 1

Issuing company can offer a maximum of $20 million in securities in any 12-month period. The issuer must provide an offering circular which must be filed with the SEC. Also, the issuer must provide purchasers with disclosures similar to those required of a registered offering. The issuer does not need to continually produce reports, only a final status report.

Tier 2

Issuing company can offer a maximum of $50 million in securities in any 12-month period. The issuer must provide an offering circular which must be filed with the SEC. Also, the issuer must provide purchasers with disclosures similar to those required of a registered offering. The issuer must produce continual reports on the offering, including a final status report.

Keep in mind that these are federal exemptions and your state may still require registration or notice.


If you are interested in investing or are looking for investors, please do not hesitate to contact one of our knowledgeable attorneys at EPGD Business Law. EPGD Business Law is located in beautiful Coral Gables, West Palm Beach and historic Washington D.C. Call us at (786) 837-6787, or contact us through the website to schedule a consultation.

*Disclaimer: this blog post is not intended to be legal advice. We highly recommend speaking to an attorney if you have any legal concerns. Contacting us through our website does not establish an attorney-client relationship.*

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