There is an argument going around that the proposed Reg D rules are not that bad because they affect only companies that are going to generally solicit their Reg D securities offerings.
This is simply not true.
The SEC’s proposed rules will adversely affect companies that are not going to generally solicit their offerings as well.
Even companies that don’t generally solicit their offerings are going to be subject to the potential one year penalty box if they miss their Form D filing deadlines. Sure, companies not generally soliciting won’t have to file “Advance Forms D,” but they will still have to timely file Forms D. The 15 day deadline, under the proposed rules, is going to become very real and very painful for companies that miss it.
Companies that are not generally soliciting will also have to complete the same Form D as companies generally soliciting. Under the proposed rules, the Forms D are going to require a lot more disclosure, and take a lot more time and expense to complete. This is another facet of the proposed rules that is not great.
Finally, companies that are not generally soliciting will also have to file terminating amendments to their Forms D, just like companies generally soliciting.
What bad part of the proposed rules will companies not generally soliciting escape? They will escape the following three requirements, which will apply only to companies generally soliciting:
- The requirement to file an Advance Form D at least 15 days before generally soliciting
- The requirement to prominently include lengthy legends on all written general solicitation materials, and
- The requirement to submit all written general solicitation material to the SEC prior to use.
Everyone in the startup ecosystem should care about the proposed rules, regardless of whether they intend to generally solicit or not. This is even more true because of the nebulous nature of what constitutes “general solicitation.” Many, many companies that don’t intend to generally solicit may trip inadvertently and fall into the rules governing companies that generally solicit.