Private placements come in different flavors. We explain Regulation D (U.S. investors), Regulation S (offshore), and why the distinction matters for compliance, documentation, and ongoing obligations.
Not all private placements are structured the same way. The specific securities law exemption used determines who can invest, what documentation is required, what ongoing reporting obligations exist, and when and how securities can be resold.
The two most common exemptions for private offerings are Regulation D (for U.S. investors) and Regulation S (for offshore investors). Many offerings use both simultaneously—allowing U.S. investors to participate under Reg D while offshore investors participate under Reg S. But the two regimes have different rules, and the distinctions matter.
Here's what you need to know as an investor or sponsor.
Regulation D provides safe harbor exemptions from SEC registration for private offerings to U.S. investors. The most commonly used provisions are Rule 506(b) and Rule 506(c).
Rule 506(b) allows offerings to an unlimited number of accredited investors plus up to 35 non-accredited but sophisticated investors. The issuer cannot use general solicitation or advertising—you can only offer securities to people with whom you have a pre-existing relationship. This is the traditional private placement model: sponsor reaches out to known investors, provides materials under confidentiality, and closes with qualified participants.
Rule 506(c), added in 2013, allows general solicitation and advertising but only permits accredited investors to participate. The issuer must take "reasonable steps" to verify accredited status—typically requiring investors to provide tax returns, W-2s, or third-party verification letters. This enables sponsors to publicly market offerings (through websites, social media, or events) but with stricter investor qualification requirements.
Both rules require the issuer to file Form D with the SEC within 15 days of the first sale, disclosing basic information about the offering: amount raised, use of proceeds, type of securities, and promoters involved. Form D is publicly available—so while the offering itself is private, the fact that it occurred is disclosed.
Regulation S provides an exemption for offerings made outside the United States to non-U.S. persons. The theory is simple: U.S. securities laws apply to offerings in the U.S. market, but shouldn't regulate transactions that occur entirely offshore between non-U.S. parties.
To qualify for Regulation S, the offering must meet two requirements: offers and sales are made in an "offshore transaction," and no "directed selling efforts" are made in the United States.
An "offshore transaction" generally means: the buyer is outside the U.S. at the time of the transaction, the offer is not made to a person in the U.S., and the transaction is executed on an offshore exchange or outside the U.S. This prevents U.S. persons from participating and prevents use of U.S. markets for execution.
"Directed selling efforts" means activity intended to condition the U.S. market for the securities—advertising in U.S. media, marketing events in the U.S., or other efforts to generate U.S. investor interest. If you're conducting a Reg S offering, you can't simultaneously be marketing to U.S. investors.
Regulation S has no filing requirements, no investor qualification standards (beyond being offshore), and no specific disclosure mandates under U.S. law (though local securities laws in the investor's jurisdiction may apply).
Most sophisticated private offerings use both Regulation D and Regulation S simultaneously. This allows the issuer to raise capital from both U.S. accredited investors (under Reg D) and non-U.S. investors (under Reg S) in the same round.
The mechanics: the offering document (PPM or subscription agreement) specifies that securities are being offered under Reg D to U.S. investors and under Reg S to offshore investors. Subscription documents ask investors to represent which jurisdiction they're in and confirm they meet the applicable requirements (accredited investor for Reg D, non-U.S. person for Reg S).
This structure is particularly common for private equity funds, hedge funds, and late-stage company financings where the investor base includes both U.S. and international participants. Using both exemptions avoids limiting your fundraising to one geography.
But the combined structure requires careful compliance. You can't use general solicitation if you're relying on 506(b) for U.S. investors—even if Reg S has no such restriction. You need to verify that offshore investors are truly offshore—not U.S. citizens temporarily abroad. And you need to maintain the offshore nature of Reg S sales through proper transfer restrictions.
Securities issued under Regulation D or Regulation S are "restricted securities"—meaning they cannot be freely resold without either registration with the SEC or another exemption. This illiquidity is a fundamental characteristic of private placements.
For Regulation D securities, the standard holding period before you can resell under Rule 144 (a common resale exemption) is six months for reporting companies (those that file public reports with the SEC) or one year for non-reporting companies. Even after that period, you must meet other conditions: the company must have been reporting for at least 90 days, volume limitations may apply, and the sale must be unsolicited or through a broker.
For Regulation S securities, there's an additional "distribution compliance period"—typically one year for Category 3 issuers (most private companies). During this period, the securities cannot be resold to U.S. persons or in the U.S. market. After the compliance period expires, Reg S securities can potentially be resold to U.S. persons under Rule 144—but only if the company is a reporting company and other conditions are met.
This means Reg S securities are often more illiquid than Reg D securities—particularly for private companies that don't file public reports. If you're a U.S. person considering buying Reg S securities in a secondary transaction, verify that the distribution compliance period has expired and that the seller is permitted to sell to you under applicable restrictions.
As an investor, understanding whether you're participating under Reg D or Reg S affects several things:
Documentation requirements: Reg D offerings typically require accredited investor verification (tax returns, income statements, or net worth verification). Reg S offerings require representations about non-U.S. status and offshore location during the transaction. Make sure you can truthfully provide the required representations.
Resale restrictions: Reg S securities may have longer effective lockups if you're subject to the distribution compliance period. Review the subscription documents and legend restrictions on your securities to understand when and how you can transfer.
Tax reporting: U.S. investors in Reg D offerings have straightforward U.S. tax reporting. U.S. investors in Reg S offerings (which shouldn't happen, but sometimes does in secondary markets or after the compliance period) may face additional complexity. Non-U.S. investors in Reg S offerings may have withholding or tax treaty considerations.
Legal protections: Both Reg D and Reg S are exemptions from registration—they don't eliminate antifraud provisions. You still have legal recourse if the offering materials contain material misstatements or omissions. But the specific legal framework differs slightly—Reg D offerings have explicit SEC guidance on required disclosures, while Reg S relies more on general antifraud principles.
We've seen several recurring mistakes in Reg D/Reg S offerings:
Accepting U.S. investors in Reg S offerings: Some issuers don't properly verify investor location and inadvertently accept U.S. persons under Reg S. This blows the exemption and could require rescission offers. Issuers should implement procedures to verify offshore status—not just accept investor representations at face value.
Using general solicitation with 506(b): If you're relying on Rule 506(b) for U.S. investors (no general solicitation allowed), you can't advertise the offering publicly—even if the Reg S component would allow it. Some issuers mistakenly believe they can publicly market the "Reg S portion" and privately market the "Reg D portion"—that's not how it works.
Failing to file Form D: This is surprisingly common. Issuers raise capital under Reg D and never file Form D, or file it late. While failure to file doesn't necessarily invalidate the exemption, it can trigger state securities law problems and is evidence of non-compliance.
Incorrect legends and transfer restrictions: Securities certificates (or book entries for uncertificated securities) must include proper legends describing the transfer restrictions. We've seen situations where securities lacked proper legends, making it unclear what restrictions applied and creating problems when investors tried to sell.
One final complexity: the SEC may "integrate" multiple offerings into a single offering for purposes of determining whether an exemption applies. If you conduct multiple offerings in close proximity, the SEC might treat them as one offering—which could blow an exemption if the combined offering doesn't meet the exemption's requirements.
The current rules (amended in 2020) provide safe harbors: offerings won't be integrated if they're separated by 30 days, or if they're made in reliance on different exemptions and the conditions of both exemptions are satisfied.
But issuers need to be careful about conducting a Reg D offering, then a Reg S offering 30 days later, then another Reg D offering—the SEC might view this as effectively one offering attempting to circumvent the per-offering limitations.
Process note
We review the offering documents for any private placement to understand what exemption is being used, what restrictions apply, and whether the issuer is complying properly. Red flags include: offerings that don't specify the exemption being relied upon, missing or incorrect legends on securities, vague marketing that might constitute general solicitation, or structures that appear to mix exemptions inappropriately. Get this right at the beginning—fixing securities law violations after the fact is expensive and sometimes impossible.
Regulation D and Regulation S are the foundation of private capital markets. Understanding the differences ensures you're participating in properly structured offerings, can verify your ability to participate, and understand the restrictions on your securities. When offering documents don't clearly specify what exemption they're using, or when the sponsor can't explain the compliance structure—that's a sign to slow down and ask questions.