Securities Offering Glossary: Reg D Terms Defined

Accredited investor: A person or entity that meets a test in Rule 501(a), such as income over $200,000 or net worth over $1 million excluding the home. Details.
Affiliate: A person that controls, is controlled by or is under common control with another person.
Bad actor: An issuer or covered person with a disqualifying event, such as a securities fraud conviction, that bars use of Rules 504 and 506. Details.
Blue Sky laws: State securities laws. For Rule 506 offerings, they mainly require notice filings and fees. Details.
Broker-dealer: A firm registered with the SEC and FINRA to buy and sell securities for others or for its own account.
Capitalization table: A record of who owns each class of a company’s securities.
Convertible note: A loan that can convert into equity on stated terms, such as at a future financing.
Covered security: A security that federal law exempts from state registration, including securities sold under Rule 506.
Date of first sale: The date the first investor is irrevocably committed to invest. It starts the 15-day Form D clock.
EDGAR: The SEC’s electronic filing system, where Form D is filed and published.
EFD: NASAA’s Electronic Filing Depository, used to make state notice filings for Rule 506 offerings.
Form D: The notice of an exempt offering filed with the SEC within 15 days after the first sale. Details.
Form ID: The application for access to EDGAR.
General solicitation: Offering securities through public means, such as ads, websites, social media or open events. Allowed under Rule 506(c), not 506(b).
Integration: Treating separate offerings as one for exemption purposes. Governed by Rule 152.
Investment adviser: Under Section 202(a)(11) of the Investment Advisers Act of 1940, a person paid to advise others about securities. Fund managers may need to register or qualify for an exemption.
Investment company: An entity primarily in the business of investing in securities. Private funds usually rely on an exclusion such as Section 3(c)(1), 3(c)(5)(C) or 3(c)(7) of the Investment Company Act.
Issuer: The company or fund that creates and sells the securities.
Jurisdictional legend: A state-specific notice in an offering document.
NASAA: The North American Securities Administrators Association, the organization of state and provincial securities regulators.
Non-accredited investor: An investor who doesn’t meet any Rule 501(a) test. Rule 506(b) allows up to 35 in any 90 days if each is sophisticated.
Operating agreement: The contract that governs an LLC: management, economics, voting and transfers.
Partnership agreement: The contract that governs a limited partnership and the general partner’s authority.
Pre-existing substantive relationship: A relationship formed before the offering, in which you know enough about a person to judge their suitability. The usual way to comply with Rule 506(b)‘s solicitation ban.
Preferred return: A return investors receive before the sponsor shares in profits, common in real estate deals.
Private placement memorandum (PPM): The disclosure document for a private offering. Details.
Promissory note: A written promise to repay money with interest by a set date.
Promote: The sponsor’s share of profits above its capital share, often after a preferred return. Also called carried interest.
Purchaser representative: An adviser who helps a non-accredited purchaser evaluate an offering under Rule 501(i).
Qualified purchaser: Under the Investment Company Act, generally an individual with $5 million or more in investments, or an entity with $25 million or more. Required for Section 3(c)(7) funds.
Regulation D: The SEC rules, 500 through 508, that provide exemptions from registration for private offerings. Details.
Regulation S: SEC rules for offers and sales made outside the United States. How it works.
Rescission: Undoing a sale: the investor returns the securities and gets their money back, with interest.
Restricted securities: Securities acquired in an unregistered offering that can’t be resold without registration or an exemption. Details.
Security: Under Section 2(a)(1) of the Securities Act, a broad category including stock, notes, LLC and partnership interests and investment contracts.
Sophisticated investor: An investor with enough knowledge and experience in financial and business matters to evaluate the merits and risks of an investment.
Subscription agreement: The contract an investor signs to buy securities in a private offering. Details.
Underwriter: Under Section 2(a)(11) of the Securities Act, anyone who buys from an issuer with a view to distribution, or helps distribute.
Use of proceeds: How the issuer will spend the money raised.
Waterfall: The order in which cash is distributed among investors and the sponsor.

Glossary

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