What is Form D and what information gets publicly disclosed to the SEC regarding a financing?

August 3, 2008

The SEC adopted new rules regarding Form D, which is routinely filed by companies for venture financings relying on one of the securities exemptions under Regulation D of the Securities Act. Regulation D is a exemption from the onerous registration requirements (i.e. a Form S-1 registration statement) of the Securities Act for a private placement of securities.

Form D is currently filed in paper format and must be filed within 15 days of the first sale of securities in the offering. Paper filings can be accessed through the SEC public reference room, and some third-party services provide information on Form Ds by scanning the paper filings. Some publications covering private company financings routinely monitor information on Form D filings from these third-party services, and often announce details of venture financings discovered in Form D filings.

Effective March 15, 2009, the old paper version of Form D will be eliminated, and electronic filing of the new version of Form D will be mandatory. The SEC’s new online filing system for Form D is expected to be available September 15, 2008, after which there will be a six-month transition period during which companies will have three options for filing a Form D: (i) filing the old version of Form D on paper; (ii) filing the new version of Form D on paper or (iii) filing the new version of Form D electronically.

Once Form Ds are filed electronically under the new rules, they will be available to anyone via the SEC’s EDGAR website.  Start-up companies that are operating in “stealth” mode or have otherwise made no public announcement of their financings should be aware that Form Ds will be more readily available once electronic filing becomes mandatory. Thus, some venture funds have requested that company counsel in venture financings avoid filing Form Ds.

Failure to file a Form D complicates the ability of the company to comply with state securities laws.  Unfortunately, one of the benefits of filing a Form D and complying with Regulation D is that the company does not need to separately comply with a securities law exemption in each state where the securities are offered. Compliance in each state requires company counsel to confirm that an exemption is available, which may increase costs in a financing if offers are made in multiple states. In addition, exemptions may not be available in certain states based on the fact pattern unless the offering also complies with Regulation D. Thus, any decision to affirmatively avoid a Form D filing should be carefully discussed with counsel.

Please refer to the existing version of Form D for the information that must be disclosed.  Among other things, the amount of the financing, the names of executive officers and directors, and the names of 10% stockholders must be disclosed.  The new rules eliminate some of the disclosure required by the current version of Form D. In particular, companies will no longer be required to identify 10% stockholders by name, or to provide detailed information on the use of offering proceeds. The new Form D will require some new disclosure in other areas, however, including a requirement to provide information on the recipients of sales commissions or finders fees.  In addition, the new rules also clarify when amendments to Form D are required.

[Update:  PEHub, which regularly uses Form D filings to report on venture financing, notes that the new rules require less information that the old rules, and that they will not cite information from the revised form without corroboration.]

Comments

  • Stephen Marcus

    The first sentence of your 5th paragraph is not correct. Since March, 1989, the filing of a Form D has not been a condition to the availability of exemption under.Reg D.

  • http://www.startupcompanylawyer.com Yokum

    I’ve clarified that the real problem is state securities law compliance. Thanks for reading carefully.

  • Mel Schaum

    If all of your investors are individuals and are “accredited investors”, do you still need to file a Form D (or any other form for that matter)?

  • http://www.startupcompanylawyer.com Yokum

    @Mel – it depends on the company’s approach to state securities law compliance.

  • jws2005

    What are the rules and regulations around the legal name company of the company listed in the Form D and the company that receives the money? For example a company is listed as KGRA Energy Corp in the Form D but the website (which has the same contact info and key employees) is listed as KGRA Energy, LLC. How do you determine the relationship between these companies?

    Also, if a company has filed more than one form D and then files an amendment, how do you know which from d the amendment applies to/