Do You Need To File a Form D?

Some companies have been choosing not to file a Form D when financing, but that could lead to some serious issues in the future.

The most common avenue that non-public companies choose to take when financing their business is to conduct a private placement and rely upon one of the exemptions from SEC registration offered by Rule 506 of Regulation D.  Once the private placement offering is in place, Regulation D requires companies to file something known as a “Form D” – a notice of exempt offering of securities with the SEC (Securities and Exchange Commission). Businesses must file this form with the SEC within 15 days of the first sale of securities in a private placement. Although it is easy for most companies to complete and file, it can be easy to overlook – especially if the business in question doesn’t have the assistance of qualified experts.

Lately, some companies have been choosing not to file a Form D when financing – a decision that may seem reasonable at the time, but that could lead to some serious issues in the future. Companies claim that their reason for ignoring the Form D is that they want to keep their financing methods a secret, and choose stealth over future safety.

Stealth Isn’t Always the Right Choice

When you choose to file a Form D, you will be required to provide information about your company that becomes public information – including certain data such as the company name, the industry its in, and the size of the proposed financing. Unfortunately, the public aspect of the form has created some controversy for people who prefer to keep their company in “stealth mode.”

While filing a Form D may not be ideal in all circumstances, it’s a legal requirement under Rule 506 of Regulation D, which is usually the best exemption available, as it offers companies the ability to raise an unlimited amount of capital from an unlimited number of investors, with a minimal amount of regulation to adhere to.  And, it works at both the federal and state level. This is particularly helpful for companies seeking investors from multiple states, who would otherwise need to search through the various securities laws of each state to avoid liabilities.

For some people, the choice regarding filing a Form D isn’t a matter of “If”, but “When”, as there are some legitimate reasons for delaying an announcement. However, it’s important to remember that you must file a Form D within 15 days of selling any securities, whether equity, debt or otherwise, if you are relying on the private placement exemptions contained in Regulation D. Delaying for too long is a bad idea, as the benefits of filing far outweigh the costs, and could even cause the SEC to bar you from private placement fundraising in the future.

Form D Can Be Really Good News

It isn’t the process of filing the Form D that has prompted some companies to avoid it, but rather the idea of announcing their funding to the public. However, announcing funding can be beneficial to your company.

After all, if you’re running a startup in its early stages, and you’ve just managed to raise your first seed or angel investment round, the chances are that this news will be your first press-release worthy offering – capable of getting you into huge industry e-zines like Business Insider, TechCrunch, and more. Announcing financing while filing your Form D can help to highlight your company, making it easier for you to persuade others to join your efforts in the future. The process alerts other venture capitalists and angels, and informs them that you’re a company that should be on their radar, while telling potential customers that you’re legitimate and trustworthy enough to earn their business.  

Filing a Form D for the first time can be a worrying experience, but fear not– the information that gets listed publicly is actually fairly minimal, and you don’t even need to list the names of your investors.  Moreover, there are legal experts available who can do it for you at truly affordable rates, and the benefits of filing the Form D offer unbeatable value in helping you to avoid future problems, keep investors happy, and even assist you in making your first big media debut.

About the Author: Erik P. Weingold

Erik P. Weingold is an entrepreneur and corporate securities lawyer with over 20 years experience under his belt.  He has been practicing law since 1995, and since 1998 has been drafting PPMs that have been used to raise millions upon millions of dollars for startup companies and small businesses throughout the U.S.  Erik is the founder and General Counsel to PPM LAWYERS.

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