Private Placements and Exempt Offerings

Regulatory status current as of June 2026 — verify effective dates, dollar thresholds, and pending rulemakings against current SEC/FINRA/FinCEN sources before advising.

Core Concepts

The Registration Baseline and the Exemption Architecture

Securities Act §5 prohibits offering or selling a security without an effective registration statement. Every private placement rests on an exemption from that requirement. The statutory exemption is §4(a)(2) — "transactions by an issuer not involving any public offering" — a facts-and-circumstances standard shaped by SEC v. Ralston Purina (investors must be able to "fend for themselves"). Because §4(a)(2) alone is uncertain, most issuers rely on Regulation D (17 CFR 230.500-508), a non-exclusive safe harbor. Losing the safe harbor does not automatically mean a §5 violation, but the issuer must then defend the offering under raw §4(a)(2), a materially weaker position. State blue-sky registration is preempted for Rule 506 offerings because they are "covered securities" under Securities Act §18(b)(4)(F), though states retain notice-filing and antifraud authority.

Rule 506(b) — The Traditional Private Placement (17 CFR 230.506(b))

• No general solicitation or general advertising (Rule 502(c)). The issuer (and anyone acting on its behalf, including a placement agent) must have a pre-existing, substantive relationship with offerees, or use another means that does not constitute general solicitation.
• Unlimited accredited investors plus up to 35 non-accredited purchasers (per offering, counted under Rule 501(e)), each of whom must be "sophisticated" — alone or with a purchaser representative, capable of evaluating the merits and risks (Rule 506(b)(2)(ii)).
• If any non-accredited investor purchases, the issuer must furnish the disclosure specified in Rule 502(b) — financial statements and information comparable to a registered offering — which is why most 506(b) offerings in practice are accredited-only.
• Self-certification is acceptable: the issuer needs a reasonable belief that investors are accredited (Rule 501(a) preamble), typically documented through an investor questionnaire. No verification procedures are mandated.