Rule 505 RegD
Rule 505: Offerings of $5 million or less
Rule 505 is used for offerings of $5 million or lessin any 12-month period and is restricted to 35 purchasers other than “accredited investors.”
There are a number of required disclosures if the sale of securities includes investors who are not accredited investors: advertising and a general solicitation are prohibited, one must inform purchasers that they receive “restricted” securities (meaning that the securities cannot be sold for a time period without registering them). You must not violate the anti-fraud prohibitions of the Federal Security Laws and your financial statements need to be certified by an independent public accountant or at a minimum, the balance sheet needs to be audited.
Companies must give non-accredited investors disclosure documents that are the same as those used in registered offerings. If a company provides information to accredited investors, it must make this information available to non-accredited investors as well. The company must also be available to answer questions by prospective purchasers. The issuer must comply with the securities laws of each state in which a person who buys the security is a resident, and must usually file a notice with that state’s commissioner of corporations or similar official, as well as filing Form D.