A frequently overlooked component of a Rule 506 offering is the requirement to make a notice filing called a Form D. Even though Rule 506 typically preempts state law compliance, state regulators still may require similar notice filings, and many states will accept the equivalent of a Form D filed with the SEC.
Failure to file Form D does not in and of itself eliminate the exemption, and in the past, the SEC issued guidance indicating they would not pursue stand-alone violations of the Form D filing requirement. However, in December 2024, the SEC announced enforcement actions based on precisely this, potentially marking a significant shift in policy. Although failure to file a Form D in connection with a Rule 506 offering may not impact the exemption in that offering, it could preclude the company from relying on Rule 506 in the future and may subject the company to enforcement action.
Form D itself is relatively straightforward. The company must disclose information about its management, its business, its revenues, and the nature of the offering. No financials need be attached, but the company must generally indicate its revenues as well as the identities of its directors and management. Form D must be filed within fifteen days of the first sale in the offering.
To file a Form D, the company must apply for and navigate its way through the technical process of obtaining “CIK” codes, which can occasionally be a Kafkaesque exercise in bureaucratic frustration. A few days should be budgeted for this if the company is not already familiar with the process. Obtaining CIK codes involves a separate notarized form to be uploaded as well as a short turnaround time for processing.
After obtaining its CIK codes, preparing its Form D and uploading it to the EDGAR database, the company should head over to the North American Securities Administrators Association (NASAA) website to handle state notice filings. There, the company essentially clicks the box for each state that should also receive the Form D, and each state will have its own filing fee. If investors reside in multiple states, each state will have a fee and notice filing requirement.
Once a company has been through the Form D filing process for the first time, it becomes a vastly simpler affair going forward. Some companies ignore the filing, whether to avoid the nuisance and expense or to stay under the radar by forgoing disclosures. A responsibly managed company will, however, want to be able to demonstrate to potential investors (and to regulators) that it has strictly complied with securities laws requirements.
Call or email today if you would like legal guidance on filing a Form D or handling a Rule 506 fundraising round.