Raising capital is the lifeblood of startups, emerging companies, and private funds. For most, the default path for securing this funding is through private offerings, primarily utilizing Regulation D under the Securities Act of 1933. While Regulation D provides a crucial exemption from the onerous process of full public registration, it is by no means a “free pass.”

Navigating a private offering successfully requires meticulous attention to three critical pillars of compliance: (i) investor eligibility and verification; (ii) bad actor disqualification checks; and (iii) timely federal and state notice filings (Form D). Understanding and executing on these pillars is essential for a clean and compliant fundraising round.

When you get that first round of funding, it can feel like a giant check and free money. But there are significant steps you must take to maintain compliance and avoid serious penalties. We can help.

Regulation D: The Core Exemptions

Regulation D offers several rules, but the vast majority of private rounds rely on Rule 506. This rule provides two distinct pathways for issuers:

Rule 506(b): The Traditional Private Offering

This is the most common path, favoring a more discreet approach:

• No General Solicitation: Issuers generally cannot publicly advertise the offering (e.g., through mass emails, public websites, or social media).
• Investor Composition: The offering can include an unlimited number of accredited investors and up to 35 sophisticated non-accredited investors.
• Verification: The issuer can rely on the investors’ representations in the subscription documents that they are accredited or sophisticated, with no heightened verification steps required.

Rule 506(c): The Publicly Advertised Offering

Designed for those who want to use broader marketing tools:

• General Solicitation Allowed: Issuers are free to publicly advertise the offering (e.g., on social media, podcasts, or public websites).
• Investor Composition: 100% of purchasers must be accredited investors.
• Verification: This is the key difference. The issuer must take “reasonable steps” to verify that all investors are, in fact, accredited. Recent clarifications by the SEC’s Division of Corporation Finance (e.g., the March 2025 no-action letter) have provided new, acceptable paths for this verification, offering flexibility for issuers who wish to leverage public advertising while maintaining compliance.

Bad Actor Disqualification (Rule 506(d))

A critical, often overlooked, component is Rule 506(d), the Bad Actor Disqualification rule. Even if the issuer meets the other requirements, the Reg D exemption becomes unavailable if “covered persons” have specific disqualifying events.

• Covered Persons include the issuer, its directors, executive officers, certain 20%+ beneficial owners, promoters, and placement agents.
• Disqualifying Events include recent criminal convictions, certain SEC injunctions or stop orders, and specific FINRA/CFTC disciplinary orders.

The Risk: An inadvertent violation of the bad actor rules can void the entire exemption, exposing the issuer to liability for conducting an unregistered offering. The best defensive practice is to incorporate bad actor certifications directly into subscription documents and placement agent agreements, ensuring that all covered persons confirm their compliance status.

Form D: The Federal Filing Obligation

Regulation D filings are notice filings, not registration statements, but they are mandatory and time-sensitive.

The Federal Requirement

Issuers relying on Regulation D must file Form D electronically with the SEC’s EDGAR system.

• Deadline: The filing must be made within 15 calendar days after the first sale of securities in the offering. The “first sale” is deemed to occur when the first investor is irrevocably committed to purchase the securities under a contract.
• Content: Form D provides a high-level notice to the SEC, detailing the issuer’s identity, its principals, the exemption relied upon, the offering size, and basic investor information.

Tracking Amendments

Form D compliance doesn’t end with the initial filing. Amendments are required for:

• Material changes to the information provided (e.g., a significant change in the offering size or issuer principals).
• An annual amendment if the offering remains open for more than one year.

Blue Sky: State Notice Requirements

A Rule 506 offering is designated a “covered security,” meaning federal law generally preempts states from requiring substantive registration or qualification. However, this preemption does not prevent states from requiring notice filings and fees, often called “Blue Sky” requirements.

• State Notice Filings: Most states require issuers to file a copy of the federal Form D (and often a consent to service of process) and pay a state filing fee.
• Deadline: The deadline typically mirrors the federal rule: within 15 days of the first sale in that specific state.

The Practical Pitfall: Issuers, often focused solely on the federal deadline, frequently miss the state notice filings. Investors’ counsel increasingly scrutinizes this oversight during due diligence and can lead to state-level enforcement actions, fines, or even bar the issuer from future fundraising in that jurisdiction.

Compliance Must-Haves in Your Fundraising Checklist

A compliant closing requires proactive management of documentation and process:

The Enforcement Landscape

Both federal and state regulators are actively policing private offerings. The SEC increasingly targets:

• Late or Missing Form D filings as a sign of lax compliance.
• Misuse of Rule 506(c) without demonstrably adequate investor verification.
• Failure to conduct required Rule 506(d) bad actor diligence.

Simultaneously, state regulators continue to pursue issuers for failure to make timely Blue Sky notice filings, particularly in large, multi-state funding rounds.

Treat Form D as a Closing Mechanic

Regulation D remains the most reliable pathway for private capital formation, but its benefits are strictly contingent upon the diligent execution of compliance steps. For issuers and funds, the key takeaway is simple: Do not treat Form D filings and Blue Sky notices as an afterthought. They are an integral part of the closing process.

In the eyes of regulators and savvy investors, a missed notice filing can be just as problematic as a missed board consent. Prioritize these compliance must-haves to ensure your fundraising success is built on a solid, legally sound foundation.

Written By: Tyler Demasky of Bagchi Law