Tuesday, June 16, 2015

All You Ever Wanted To Know About Form D: When, Why and How to File

Why File Form D?

When raising money in a private placement, the most common path for companies to take is to make use of one of the Regulation D exemptions from registration, utilizing either Rule 504, 505 or, most commonly, Rule 506. Once the offer for private placement is made, Rule 503 of Regulation D requires the companies engaging in the private placement (let's refer to them as the “issuers”) to file a Form D—Notice of Exempt Offering of Securities—with the Securities and Exchange Commission (the “SEC”).

What Information Do I Need To Have To Be Able To File Form D?

Here is the information you need:
  • Company name, principal place of business and contact information (including a phone number)
  • Type of entity, state and year of incorporation
  • List of related parsons (executive officers, directors, promoters)
  • Size (based on revenue or NAV) - this info is optional
  • Federal exemption claimed for the offering of securities
  • Date of first sale
  • Whether the offering will last for longer than a year
  • Type of security offered (debt, equity...)
  • Whether the offering is made in connection with a business combination
  • Minimum investment accepted
  • Information related to sales compensation (if any)
  • Total offering amount, amount already sold and amount remaining to be sold
  • Number of investors (and separately the number of non-accredited investors) 
  • Amount of sales commissions and finders' fees
  • Use of proceeds and amounts paid to officers, directors and promoters as compensation.
When to File Form D?

Form D must be filed no later than fifteen calendar days following the first sale of securities in the offering. If the fifteenth calendar day falls on a weekend or holiday, the deadline is pushed back to the next following business day (but note that otherwise both weekends and holidays are counted for purposes of the fifteen day total.) The “date of first sale” is the date on which the first investor is contractually obligated to invest (e.g. if an investor signs a binding contract to invest on January 1, requiring payment for the securities on January 10, the date of first sale is January 1.)

Form D is also the correct form to use when the issuer seeks to amend an original Form D filing. Part 7 of the Form allows the issuer to indicate whether the filing is an original filing or an amendment to one previously filed. An issuer may choose to file an amendment at any time (i.e. a permissive filing). However, there are also certain situations, laid out in Rule 503, where the issuer must file an amendment. These are:
  • To correct a material factual mistake in the previously filed Form D. The amendment must be filed “as soon as practicable after discovery of the mistake or error.”
  • To reflect any change in (i.e. update) the information provided in the previously filed Form D (but only if the offering has not already terminated). Although this second requirement seems very broad, Rule 503 also carves out a number of exceptions where certain changes in information will not require an amended filing, if the only information that has changed includes only:
    • The address or relationship to the issuer of a “related person” (i.e. executive officer, director, and/or promoter);
    • The issuer’s revenues or aggregate net asset value;
    • Any change in the minimum investment amount of 10% or less;
    • The address or state of solicitation for anyone receiving sales compensation in connection with the offering;
    • Any change in the total offering amount of 10% or less;
    • The amount of securities being sold or remaining to be sold;
    • The number of non-accredited investors who have invested in the offering (so long as not over 35)
    • The total number of investors participating in the offering; or
    • Any change in the amount of sales commissions, finders’ fees or use of proceeds for payments to executive officers, directors, or promoters or of 10% or less.
In addition, so long as an offering is ongoing, the issuer must file annually, either on or before the first anniversary of the original filing or the anniversary of the latest filed amendment (whichever is later.)

How to File Form D?

Now that we’ve discussed when to file Form D and what information to include, let’s move on to discussing how to file it. The first thing to know is that the SEC requires that Form D be filed electronically using its Electronic Data Gathering, Analysis, and Retrieval System (more affectionately known as EDGAR). To access the EDGAR filing system (located here), a company must have both a Central Index Key (CIK) and an EDGAR access code.

If the issuer has never previously filed anything with the SEC, electronically or otherwise, it needs to apply to get the CIK and EDGAR access codes by using what is known as Form ID. The SEC website provides a super helpful guide to this process here (see specifically Steps 2 and 3). Remember that the Form ID must be printed, signed and notarized by an authorized person, and then submitted as an attachment to the SEC.  Then, the SEC sends the filer the CIK number by email, typically within a couple of days.  Next, the filer uses the CIK number to obtain the EDGAR access codes.  Once the company has obtained its CIK and EDGAR access code, it can log on to EDGAR here and from there follow the instructions to submit Form D.  I would suggest allocating 2-3 days to get through this process.  

Who Can Sign Form ID and Form D?

The forms can be signed by the issuer's executive officer or director.  An attorney for the company may also sign, but that attorney must be duly authorized by the company or be acting under a power of attorney or other corporate authorization.  So, when the attorney for the company is attaching a notarized Form ID, he or she should also attach the authorization from the company.  

One final thing to note about EDGAR: although it is an online filing system, it is not available 24-7. The system may be accessed between 6 a.m. and 10 p.m. Mondays to Fridays (excluding federal holidays).

This blog article was written and published on June 16, 2015, and the information is accurate (to the best of our knowledge) as of this date.  As you know, with time rules and forms change, and this information may become inaccurate or obsolete.

This article is not a legal advice, and was written for general informational purposes only.  If you have questions or comments about the article or are interested in learning more about this topic, feel free to contact its author, Arina Shulga.  Ms. Shulga is the founder of Shulga Law Firm, P.C., a New York-based boutique law firm specializing in advising individual and corporate clients on aspects of corporate, securities, and intellectual property law.

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