What is a Regulation S Offering

The Regulation S Offering (Reg. S) is an exemption designed by the SEC for companies seeking to raise capital from investors located OUTSIDE of the United States. A regulation S offering under the Securities Act of 1933, as amended (the "Securities Act") is a safe harbour rule that defines when an offering of securities would be considered an "offshore transaction" so as not to be subject to the registration obligations imposed under Section 5 of the Securities Act.

A regulation S offering (Foreign Direct Public Offering) only exempts the issuer from the registration requirements. It does not exempt the issuer from anti-fraud provisions.

There are two main requirements in using a Regulation S offering. The first is the offer and sale of the securities must be in legitimate offshore transactions. Under a Regulation S offering, you may not offer or sell any securities to a U.S. citizen or resident even if that person purchases the securities abroad. Also, the sale must not be done for the purpose of secretly selling the securities to a U.S. investor. The second requirement under Regulation S is that there cannot be any directed selling efforts in the United States. Generally, this means you cannot advertise the offering in a publication where the circulation crosses over to the U.S.

A regulation S offering provides two exemptions or safe harbors from U.S. securities registrations: an exemption for the initial sale and another exemption for the resale of securities after they are held for a period of time example normally one year.

An important advantage of using Regulation S is you are able to advertise in the foreign markets in newspapers and other publications. Under Regulation S you are allowed to hold seminars, road shows and engage in other general solicitation outside of the U.S. Make sure you are complying with the foreign countries' securities laws.

Also, Foreign Direct Public Offerings (Regulation S) are not integrated with Section 5 public offerings or Reg. D Private Placement Offerings. Reg D offering documents contain rules which apply to U.S. transactions. Regulation S offering documents contain rules which apply to foreign transactions only. Therefore, you can conduct simultaneous Private Placement Stock Offerings (Reg. D for U.S. investors) and a Foreign Direct Public Offering (Reg. S for non-U.S. investors) without jeopardizing either exemption. Also, Regulation S (non-U.S.) investors are treated the same way as accredited investors for the purpose of determining compliance with the 35 non-accredited investor limitation outlined in Reg D U.S. private placements.

 

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