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Private Placements and Other Exempt Offerings

For most startup businesses, some amount of starting capital is needed to get the enterprise up and running. Taking on investors is one common option that many businesses consider. Then comes the hiccup: once a business takes on investors, they are subject to SEC rules and regulations. This means that SEC registration may be required and/or they may face additional hurdles in order to secure the needed funding. The cost, time, and potential headache of this additional oversight can be avoided via a Regulation D Rule 506 exemption, which specifically pertains to private placements.

  • A private placement is useful in situations where a business seeks to raise capital by selling securities (equity or debt) to investors without filing a full registration statement with the SEC and without conducting a full initial public offering (IPO)—which is usually well beyond the budget and available resources for a small business startup.

If you are raising capital (whether from friends and family, outside investors, or private equity or investment firms) and considering a private placement, The Castle Law Firm has you covered. The firm assists companies in the early and development stages of their business cycles navigate the complex and highly regulated securities laws governing their private placement and crowdfunding goals. Some of the services the firm offers include:

  • Drafting your Private Placement Memorandum, including:
    • Investor Questionnaires
    • Accredited Investor Representation Letters
    • Purchaser Representative Questionnaires and related material
  • Drafting your Subscription Agreements
  • Drafting your Form D and Blue Sky Filings, if necessary
  • Drafting Federal Offering Compliance Attorney Opinion Letters, which adds credibility and comfort for prospective investors

In addition, the firm will assist and guide you in forming your entity, and draft your shareholder or operating agreement. Depending on the type of offering, The Castle Law Firm will also work with you on other required items, such as advertising and marketing material, compliance matters, anti-money laundering programs (compliance and testing), and due diligence matters.

What is a PPM?

A PPM is a legal disclosure document containing all important and material facts about your business; in other words, everything an investor will need and want to know in order to make an informed decision about whether to make an investment in your enterprise (for example, a description of business operations, financial information, objectives, and risk factors). It further operates as legal protection that allows you to raise money from investors while limiting your legal and regulatory exposure. It informs a prospective investor about the deal so he/she knows exactly what type of interest they are receiving in the company, and discloses risks the prospective investor faces if they make such an investment.

Using a private placement under Regulation D is a convenient, and the most frequently used, option for companies in these situations. However, there are a number of other exemptions that may also be available to your business depending on your circumstances. Choosing the wrong exemption or failing to comply with your exemption requirements can result in serious consequences, including penalties from the SEC and/or state securities agencies, civil liability, and even criminal prosecution. As a result, it is always in a company’s best interest to consult with a knowledgeable attorney. As you explore your options, The Castle Law Firm has the experience to help guide you through the process, assist you in determining which exemption best suits your needs, and ensure that you comply with all relevant securities laws.

Regulation D Rule 506 Exemption

Regulation D allows a business to raise private funds with securities (like equity in the company) that are exempt from registration with the SEC. The exemption allows companies to raise unlimited amounts of funds and sell securities to an unlimited amount of accredited investors – all without the cost and hassle of SEC registration and the necessity to meet any state-specific filing requirements.

Note that (a) Regulation D Rule 506 securities are restricted and typically cannot be sold by investors for a period of time unless they register them with the SEC (usually 6 months to 1 year), and (b) you can only sell securities to 35 non-accredited investors.

Client Reviews

Rob and his firm assisted with a number of formation and start up issues for my new business venture. He is an intelligent attorney and a pleasure to work with. I will continue to use The Castle Law Firm in the future. Highly recommend.

- John M.

As first-time franchise buyers, we didn't know what to expect. Rob walked us step-by-step through our franchise agreement and FDD, answering any questions and easing our concerns. He pointed out potential risks and terms to negotiate, and has been there for any business questions along the way. Rob...

- Mike W.

I had an excellent experience working with Mr. Castle as my attorney. Mr. Castle reviewed several detailed contract issues with me. He was able to answer all of my questions, provide valuable insight and suggestions in a way I could easily understand. Mr. Castle is knowledgeable, as well as...

- Shawn M.

Great, professional service. I have been working with The Castle Law Firm on some business matters, and have been blown away by their attention to detail and professionalism. Rob is extremely responsive and gets work done quickly. I would recommend this firm to anyone needing legal/business...

- Andres J.

Rob Castle provided me with beneficial legal counsel when forming my various LLCs, and has served as a great resource while running my businesses. He is very professional, and I recommend his firm’s services.

- Richard Y.

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