Requirements for Exemption Under Regulation D
U.S law generally requires securities (including virtual tokens that qualify as securities) to be registered with the government before they can be offered or sold. Regulation D provides two major exemptions from registration for some offerings.
Under Rule 504 of Regulation D, a company can offer and sell its virtual tokens to an unlimited number of investors, but the offering is limited to only $5 million during any 12-month period.
In comparison, under Rule 506, a company can offer and sell an unlimited amount of its virtual tokens. Rule 506(b) permits sales to up to 35 purchasers who do not qualify as accredited investors, but prohibits general solicitation. Rule 506(c) requires that all purchasers qualify as accredited investors, but permits general solicitation.
Regardless of which rule is used to exempt an offer of virtual tokens under Regulation D, the tokens will be subject to transfer restrictions. In general, those restrictions prohibit the tokens from being resold or transferred for at least one year after purchase.
Guidance for Token Sales Under Reg D
KSTechLaw provides comprehensive legal guidance and practical solutions throughout a Regulation D offering of virtual tokens.
Our services include:
- Carefully reviewing our clients’ circumstances and advising them on the optimal registration exemption for their token sales, whether under Regulation D or not
- Drafting detailed private placement memorandum that clearly describe the virtual tokens and contain all necessary disclosures and disclaimers
- Advising clients on verification of the identifying information provided by prospective purchasers and determining purchasers’ eligibility to participate in a token sale
- Preparing and filing Form D to notify the SEC of the offering under Regulation D
- Structuring a simultaneous offering outside of the United States under Regulation S, if necessary
Requirements for Exemption Under Reg S
In addition to exemption from registration under Regulation D, the US securities laws also provide a framework for issuing securities exempt from registration with the SEC under Regulation S.
Specifically, Rule 903 of Regulation S provides an exemption when an offer or sale is made in an offshore transaction, and no directed selling efforts are made in the United States. An offshore transaction is generally one in which the offer is not made to a person in the U.S, and the buy order originates when the buyer is outside the United States.
Fortunately, although Rule 903 prohibits directed efforts in the United States, an international offering under Regulation S can be coupled with a U.S offering exempt from registration under Regulation D.
Guidance for Token Sales Under Reg S
KSTechLaw provides comprehensive legal services throughout an offering under Regulation S.
Our services include:
- Reviewing our clients’ planned token sales and advising them on applicable U.S. laws, including qualifying offshore transactions for the Regulation S exemption
- Drafting detailed offering memorandum and purchase agreements to make clear who is eligible to participate and what U.S restrictions apply to the virtual tokens
- Assisting clients in conducting appropriate Anti-Money Laundering and Know Your Customer screening of prospective purchasers, ensuring that purchasers are who and where they claim to be
- Structuring a simultaneous offering within the United States under Regulation D or another applicable exemption from registration