All securities offered in the United States must be registered with the SEC or qualify for an exemption. The registration of securities enables investors to make informed judgments about investing in a company. Companies registering with the SEC must share a description of the company’s properties and business, a description of the security to be offered, information about the management of the company, and financial statements. All of the information shared by the company becomes publicly available.
There are some exemptions to registration, including private securities offerings to a limited number of investors or institutions, offerings of a limited size, and offerings to experienced or knowledgeable investors. Exemptions are beneficial to the company offering securities because they allow the company to keep more information private and they require less administrative burden on the company to organize the information and complete the registration steps. Exemptions are also cheaper for companies and can allow companies to offer their securities at a lower price.
Are there exemptions if all my investors are foreign?
Regulation S exempts US companies from registration when they only offer securities to foreign investors. This regulation consists of five different rules: Rule 901 is a general statement of the scope of the act, Rule 902 offers definitions, Rule 903 is the Issuer Safe Harbor, Rule 904 is the Resale Safe Harbor, and Rule 905 offers the Resale Limitations.
Rules 903 and 904 allow for the issuance and sale of unregistered securities when the offer and sale are made in an offshore transaction and when no direct selling efforts are made within the United States. An offshore transaction is an offer made outside of the United States to a buyer outside of the United States. Offerings and sales of securities to US citizens living abroad do not qualify for a Regulation S exemption.
The resale restrictions in Rule 905 ensure that the exempt securities are not sold to US citizens by restricting the resale of securities offered under this exemption. The resale restriction is unique to the Regulation S exemption.
What are the advantages to a Regulation S exemption?
The regulation S exemption allows companies to have a global reach with their offerings. Regulation S also has a low regulatory burden and offers more flexibility to companies. Regulation S is meant to complement the securities laws of the foreign countries where the securities are offered, which also makes it easier for companies to comply with various regulations.
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