Regulation D Limitations on Resale: What You & Your Investors Should Know
Syndication Law & The Private Placement Memorandum Attorney
Limitations on Resale of Securities and Creating a Right of First Refusal
This chapter explores the SEC regulations on resale of securities, emphasizing that the purpose of these limitations is to discourage their use solely for resale and instead focus on the profits within the security. The concept of creating a right of first refusal is also discussed.
Tilden Moschetti, a syndication attorney with the Moschetti Law Group, specializes in creating private placement memorandums under Regulation D Rule 506b and Rule 506c for syndicators and businesses trying to raise capital. In this summary, he addresses the common question of limitations on resale within these documents.
A private placement memorandum outlines a private offering that is exempted from SEC registration. One stipulation is the implementation of limitations on resale to prevent a secondary market from forming outside SEC regulation. These limitations are outlined under Rule 502d.
According to Moschetti, investors cannot purchase securities solely with the intent of resale for profit. Instead, the securities should provide value through dividends, reversions, or other forms of payout. If an investor needs to cash out, a right of first refusal is commonly implemented, which allows the manager or other members to buy the securities first.
To demonstrate compliance with Rule 502d, Moschetti suggests following these steps:
1. Conduct a reasonable inquiry to determine if the purchaser is acquiring the securities for themselves or others.
2. Provide written disclosure prior to the sale that the securities are not registered and therefore cannot be resold unless they are registered or an exemption is available.
3. Include a legend on the certificate or document evidencing the securities, stating the same.
Moschetti's law group provides free consultations for those interested in their services. They offer flat fees and boast quick turnaround times.
Read more about Reg D Rule 506b - Rule 506b of Reg D: Non-Accredited Investors & No Solicitation: https://www.moschettilaw.com/rule-506b-of-reg-d/
Read more about Reg D Rule 506c - Rule 506c of Reg D – Solicitation & No Non-Accredited Investors: https://www.moschettilaw.com/rule-506c-of-reg-d/
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