Integration of securities offerings – how to avoid it

Let’s say you decide to do a private placement of securities under the federal exemption from registration requirements Regulation D, Rule 504.  Under Rule 504, you can raise up to $1 million.  Let’s say you raise $950,000 under this offering.

Two months later you decide to do another securities offering under Rule 504 and your raise another $950,000.

Chances are, you will have violated the requirements of Rule 504.  Why?  Because the SEC will integrate the two offerings into one and you will have raised $1.9 million total which exceeds the $1 million maximum of Rule 504.

How can you prevent two separate securities offerings from being integrated?

The SEC looks at the following factors when determining whether two offerings should be integrated:

  1. Whether the two offerings are part of a single plan of financing
  2. Whether the two offerings are for the same class of securities
  3. How close together the two offerings are in time
  4. Whether the same type of payment for the securities is being received in both offerings
  5. Whether the two offerings are for the same general purpose

It may be difficult to tell whether two offerings are likely to be integrated by the SEC.  Luckily, there is a “safe harbor” rule you can use to make sure that two offerings will not be integrated.  As long as the end of one offering is separated by at least six months from the beginning of another offering, they will not be integrated.