Rule 506 of Regulation D

Rule 506 of Regulation D is considered a "safe harbor" for the private offering exemption of Section 4(2) of the Securities Act. Companies using the Rule 506 exemption can raise an unlimited amount of money. A company can be assured it is within the Section 4(2) exemption by satisfying the following standards: The company cannot use general solicitation or advertising to market the securities; The company may sell its securities to an unlimited number of "accredited investors" and up to 35 other purchases.

Unlike Rule 505, all non-accredited investors, either alone or with a purchaser representative, must be sophisticated—that is, they must have sufficient knowledge and experience in financial and business matters to make them capable of evaluating the merits and risks of the prospective investment;

Companies must decide what information to give to accredited investors, so long as it does not violate the antifraud prohibitions of the federal securities laws. But companies must give non-accredited investors disclosure documents that are generally the same as those used in registered offerings.

If a company provides information to accredited investors, it must make this information available to non-accredited investors as well;

1. The company must be available to answer questions by prospective purchasers;
2. Financial statement requirements are the same as for Rule 505; and
3. Purchasers receive "restricted" securities, meaning that the securities cannot be sold for at least a year without registering them.

While companies using the Rule 506 exemption do not have to register their securities and usually do not have to file reports with the SEC, they must file what is known as a "Form D" after they first sell their securities. Form D is a brief notice that includes the names and addresses of the company’s owners and stock promoters, but contains little other information about the company.

In February 2008, the SEC adopted amendments to Form D, requiring that electronic filing of Form D be phased in during the period September 15, 2008 to March 16, 2009. Although as amended, the electronic Form D requires much of the same information as the paper Form D, the amended Form D requires disclosure of the date of first sale in the offering. Previously, the closing date of an offering was used as the first date of sale. The Office of Small Business Policy has posted information on its web page about the filing requirement for the new Form D.

If you are thinking about investing in a Reg D company, you should access the IDEA database to determine whether the company has filed Form D. If you need a copy of a Form D filed as a paper filing (which will include any Form D filed before September 15, 2008), you can request a copy using our online form. If the company has not filed a Form D, this should alert you that the company might not be in compliance with the federal securities laws.

You should always check with your state securities regulator to see if it has more information about the company and the people behind it. Be sure to ask whether your state regulator has cleared the offering for sale in your state. You can get the address and telephone number for your state securities regulator by calling the North American Securities Administrators Association at (202) 737-0900 or by visiting its website. You’ll also find this information in the state government section of your local phone book.

Why Now?

The demand for our Regulation D stock offering program has increased greatly as more people find this method of raising capital. The reason is simple; it has worked since 1933. No other way to obtain capital has the history of the Regulation D stock offering, also known as Private Placement Memorandum.

Now is the time (since the economy has slowed) to get your PPM documents completed and in the hands of investors seeking new and other types of investment opportunities. Use this time to get your stock offering completed. Get the capital you need now! Get your Regulation D stock offering documents done now! Investors coming to Cambridge Financial Services (CFS) have increased dramatically, due to the poor performance in the public market; many investors are looking for investment opportunities in Private Placement Memorandums (PPM) / Regulation D stock offerings.

Currently there are limited ways to obtain capital due to the credit crisis or, banks' lending institutions not lending. Even the Small Business Administration (SBA), which back bank loans to small businesses, is not functioning due to the credit crisis going on here in the US. Beware of web sites and companies saying you can get grant money. The US government grant funding has dried up. The government owes more money than it takes in.

Programs all across the country are being cut and are disappearing. You won’t get help in getting the capital you need from the government, the banks, or lending institutions. At least the individual investors are still aggressively investing. Private Placement Memorandums are the best way to obtain capital. Since you are getting capital from individual investors, they are the people motivated to put their money to work.

You have the business opportunity to offer them, by doing it the legal and proper way that they expect to see through a Reg. D stock offering. This is the time to get your business documented in the form of a Reg. D stock offering. Investors have the motivation, like no other time, to invest in start-up companies and small expanding companies.

The Value of an Offering Document

Although Rule 504 has no prescribed disclosure requirements, you should always prepare and use an offering document for YOUR PROTECTION. The exemptions from registration provided by Regulation D do not include exemptions from the anti-fraud or civil liability provisions of any of the federal or state securities laws. These provisions are broad and include civil and criminal penalties for the misstatement or omission of facts that are relevant to making a fully informed investment decision.

If your company makes a Rule 504 offering without providing investors with an offering document, your company, its board, and its principals will be at an extreme disadvantage in defending themselves if your business is confronted with a securities fraud action.

A Rule 504 offering document does not require the detailed disclosure of a Rule 505 or 506 offering, but it should include the following information:

1. A description of the business being conducted and/or intended to be conducted along with the general development of the business during the preceding five years or as long as it has been operating, if the business is less than five years old.
2. A description of the principal products or services, their principal markets, and the methods of distribution.
3. A description and cost summary of any research and development activities during each of the last two fiscal years.
4. The number of full and part-time employees and their special qualifications.
5. A description of any special characteristics of the company's business or industry which may have a material impact on future financial performance. These may include existing or probable governmental regulations, dependence on one or a few major suppliers, unusual competitive industry conditions, etc.
6. Summaries of the principal factors that make the investment risky. These factors might include:
   1. An absence of an operating history.
   2. Lack of profitable operations in recent periods.
   3. The company's general financial condition.
   4. Lack of a trading market for the securities or restrictions against transfer.
   5. Conflicts of interest between the company and its management.
   6. Reliance on the efforts of a single individual.
   7. If there is a material disparity between the offering price of the securities and the effective cash cost to officers, directors, promoters and affiliates for shares acquired during the preceding three years, there should be a comparison of such prices.
   8. The uses and allocation of the proceeds.
   9. A brief description, including the location and character of the company's principal facilities and other important physical properties. If any are leased, include the basic lease terms such as length of lease, rent, renewal options, etc.
   10. Relevant information regarding directors, officers and significant employees. (Include information such as ages, educational backgrounds and business experience, as well as any special information such as criminal convictions, bankruptcies, etc.)
   11. The aggregate annual compensation of the three highest paid officers and directors, and the total for all officers and directors.
   12. The security ownership of each officer and director, and the identity of each person owning 10 percent or more of the company's shares. (Include the ownership of outstanding warrants or options to purchase additional securities by any of these individuals.)
   13. All significant transactions between the issuing company and any of its officers, directors or principal security holders within the previous two years or those presently contemplated.
   14. A detailed description of the securities being offered. Include such matters as dividend rights, voting rights, liquidation rights, preemptive rights, conversion rights, redemption provisions, sinking fund provisions, liability for further calls or assessments, restrictions against sale or transfer of the securities, etc.
   15. A description of how the securities are being sold, the purchase price commissions percentage, if any, the minimum number of securities that must be sold for the placement to be effective, etc.
   16. Financial statements that conform to Generally Accepted Accounting Principals.
   17. It is necessary to provide accurate and complete information to prospective investors in order to eliminate potential liability. The exact scope of these disclosures will vary depending on your business and the transaction.

In most cases, there is a market for your company's securities, and a Reg. D Series Offering, Limited Partnership Offering, or a U-7 Offering can make sense. Most security offerings will require costly preparation and involve financial risk for your business, but a Rule 504 Private Placement, Limited Partnership, or U-7 can reduce costs and risks while enabling your company to obtain the growth capital it needs.

The information obtained from these procedures will form the basis of the offering documents, Form D (a simple statement of the offering and the only document that your company must file with the SEC under Rule 504 and U-7).

Once the offering documents are complete and the applicable state filings, if any, have been made, use them in connection with all offers and sales. Do not make any oral representations to prospective investors or give any supplemental documents that have not been reviewed by securities counsel. Generally speaking, if you give supplemental information to one potential investor, you should give it to all. This is especially true if the information in question alters the decision of the potential investor. Under these circumstances, it is most likely material information which you should have included in the first place. Disclose any additional material developments or changes in the terms of the offering in amendments or supplements to the offering documents, and distribute them to all offerees.

The Use of Regulation D Stock Offerings Reach an All Time High!

There are more entrepreneurs then ever before using the Regulation D Stock Offering (also known as a Private Placement Memorandum) which is the best, quickest and least costly method for raising capital for start-up and expanding businesses. When using software available from Cambridge Financial Services & Software (CFSS.com) to prepare your stock offering the majority of the document is already prepared for you. For the Reg. D program, just add your business and financial information.

With the explosion of new business products and concepts, the need to get funding has brought out a vast number of so called venture firms and financing businesses. None of these fly by night businesses can compete or compare to using the Reg. D method for raising capital. The rules for Reg. D have been tried and tested and used countless times since it’s creation in the year 1933. Entrepreneurs looking for funding should seek out a reliable and truly tested method to raise capital. Why would any serious business owner go to one of the many fly by night firms now flooding the Internet that cannot provide a rock solid program that is the least costly and quickest way to get funded?

For any business owner that wants to raise capital from angle investors that do not get involved in the company’s operation and provide funds for 3-5 years before looking for their return on investment (ROI), Reg. D is the method to use. Business owners keep the majority of the company’s stock and voting rights so as not to give up control in their business. Business owners seeking loans to start their business put themselves in a position of having debt and monthly payments, to add to their monthly expenses, which in most cases becomes detrimental to the success of the business.

There are so many upcoming businesses and a huge increase of entrepreneurs looking to start or expand their business and get away from working for others. The software offered allows business owners to forgo spending time and money preparing a business plan that is not a legal document to solicit investors.

People in many corporations have lost their retirement plans due to companies not funding them properly. Therefore, people are now starting to see that working for large business corporations that do not have their employee’s best interest in mind is not the best thing for them.

With so much misinformation on the Internet and many fly by night venture firms now flooding the Internet, it has become difficult to find a reliable method for obtaining capital. Cambridge Financial Services & Software is a company that has over 30 years in preparing Regulation D Stock Offerings/Private Placement Memorandums the most reliable method for raising capital. Cambridge Financial Services & Software have the only Reg. D stock offering software program approved by the federal government containing all the required disclosures, forms and other related documents to prepare a top notch stock offering.

Our Virtual Offering Room Website