Regulation S offerings

The short answer

SEC registration applies to offers and sales in the United States. Regulation S sets out when an offer and sale take place outside the United States, so registration doesn’t apply. Rule 903 gives the issuer a safe harbor: meet its conditions and the offering is treated as offshore.

Two conditions for every offering

• Offshore transaction. No offer is made to a person in the United States, and the buyer is outside the United States when the order is placed, or you reasonably believe so.
• No directed selling efforts. Neither you nor anyone acting for you may do anything to build a U.S. market for the securities, such as advertising the offering in publications with general U.S. circulation.

Category 3: the rules for most private U.S. companies

Regulation S sorts offerings into three categories by how likely the securities are to flow back into the United States. A U.S. company that isn’t an SEC reporting company falls into Category 3, the strictest, which adds:

• Offering restrictions. The offering materials carry the Regulation S legends, and anyone selling the securities for you agrees in writing to follow the rule.
• A distribution compliance period. No offers or sales to U.S. persons for one year for equity, including convertible notes, or 40 days for debt.
• Buyer certifications. Each equity buyer certifies that it isn’t a U.S. person, agrees to resell only under Regulation S, registration or another exemption, and agrees not to hedge except in compliance with the Securities Act.
• Legends and transfer controls. Equity carries a restrictive legend, and the company must refuse to register transfers that don’t comply.
• Temporary global note for debt. Notes are held in a temporary global note until the 40-day period ends and non-U.S. ownership is certified.

Who is a U.S. person?

Under Regulation S, it’s about residence, not citizenship. U.S. persons include anyone resident in the United States, any partnership or corporation organized under U.S. law, and most accounts held for a U.S. person. A U.S. citizen living abroad generally isn’t a U.S. person under Regulation S, but is still a U.S. taxpayer and gives you a Form W-9 rather than a W-8.

Resales

During the distribution compliance period, the securities can’t be offered or sold to U.S. persons without registration or an exemption. Equity of a U.S. company sold under Regulation S is also a restricted security under Rule 905, so after the period ends, U.S. resales still need registration or an exemption such as Rule 144. Offshore resales can rely on Rule 904.

No Form D or Blue Sky notices

Regulation S has no SEC filing like Form D, and Blue Sky notice filings generally don’t apply to sales made only to investors outside the United States. The investor’s own country is another matter: many countries regulate private offerings to their residents, and some require a filing, a license for anyone selling or specific wording in the offering documents. Have local counsel confirm the rules in each country where you sell.

Alongside a U.S. offering

You can raise from non-U.S. investors under Regulation S while raising from U.S. investors under Rule 506. The SEC’s integration rules treat a Regulation S offering as separate from a concurrent U.S. offering. Each side needs its own documents: U.S. investors get the Regulation D PPM and subscription agreement, and non-U.S. investors get the Regulation S versions.

Tax for non-U.S. investors

Non-U.S. investors face different U.S. tax rules: 30% withholding on dividends unless a treaty lowers it, the portfolio interest exemption that can remove withholding on interest from registered notes, withholding on effectively connected income from partnerships and LLCs, and FIRPTA for real estate. Investors certify their status on Form W-8BEN or W-8BEN-E.

Our Regulation S templates

Every structure in our catalog has a Regulation S version. Each PPM includes the Regulation S notices and legends, the distribution compliance period for the securities offered, the resale restrictions and a tax section for non-U.S. investors, with a placeholder for each country’s notice. The matching subscription agreement includes the investor’s Regulation S certification. Browse the templates.