Understanding Securities Law
The business professional's guide to securities laws
 

Regulation S is a form of private placement available to both U.S. and foreign companies. If you sell your company’s stock outside the United States, the most common exemption from registration is by following SEC Regulation S. To comply with Regulation S, you may not make any offers or sales in the U.S. or directed into the U.S. or to any citizen or resident of the U.S.

Unlike exemptions from the registration requirements of Section 5 in Sections 3 and 4 of the 1934 Selling Stock Act, Regulation S is an exemption from the registration requirements of Section 5 by regulation. Rule 901 of Regulation S provides that:

For the purposes only of section 5 of the Act , the terms offer, offer to sell, sell, sale, and offer to buy shall be deemed to include offers and sales that occur within the United States and shall be deemed not to include offers and sales that occur outside the United States.


Rule 903 of Regulation S sets forth the requirements for meeting the exemption

The principal requirements that apply to foreign private placements of stock are as follows:

• The purchaser of the securities certifies that it is not a U.S. person and is not acquiring the securities for the account or benefit of any U.S. person or is a U.S. person who purchased securities in a transaction that did not require registration under the Act.
• The purchaser of the securities agrees to resell such securities only in accordance Rule 144 or pursuant to a Section 5 Registration Statement.
• The purchaser agrees not to engage in hedging transactions with regard to such securities.
• The securities of a U.S. issuer contain a legend to the effect of the two prior bullet points.
• The issuer is required, either by contract or a provision in its bylaws, articles, charter or comparable document, to refuse to register any transfer of the securities not made in accordance with the provisions of Regulation S or pursuant to registration under the Act, or pursuant to an available exemption from registration.

In general, none of the limitations for Reg. D offerings described above apply to a Regulation S offering such that:

• There is no limitation on the number or nature of purchasers
• There is no prohibition on general advertising and solicitation so long as it is not directed into the U.S. Thus, sales on the internet still don’t work for Reg. S placements.
• There is no specific disclosure information or financial statements required, although you may not do anything that would be considered securities fraud in the offer and sale of Reg. S securities.
• Stock sold under Reg. S is free trading stock if sold offshore to a person not a citizen or resident of the U.S. but must continue to bear a restrictive legend and can only be resold into the U.S. in accordance Rule 144 or pursuant to a Section 5 Registration Statement.

No Integration of Regulation S offerings with Section 5 Public Offerings or Regulation D Private Placements

Regulation S offerings are not integrated with Section 5 Public Offerings or Regulation D Private Placements. This has several significant consequences:

Regulation S investors are treated the same way as Accredited Investors for the purposes of determining compliance with the 35 Non-Accredited Investor limitation in Regulation D Private Placements. And Regulation S has no limits on the number or nature of purchasers. You can conduct simultaneous Reg. D and Reg. S offerings without concern that the Reg. S offering puts you at risk of blowing the Reg. D exemption.

Regulation S offerings are not integrated with simultaneous public offerings. Thus you can continue to raise money in a Reg. S offering even after you file your Registration Statement. Beware, however, that this will change your disclosure during the review process, which could delay the time it takes the SEC to clear your filing.