The Private Placement (Regulation D) Securities Exemption

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What it is – How it works?


By Dr. David Edward Marcinko MBA

Since the Securities Act of 1933 requires disclosure of all public offerings (other than the exemptions just described), it should make sense that any securities offering not offered to the public would also be exempt. The Act provides a registration exemption for private placements, know as Regulation D.

Since one of the stated purposes of the Act of 1933 is to prevent fraud on the sale of new public issues, an issue which has only a limited possibility of injuring the public may be granted an exemption from registration. The SEC just doesn’t have the time to look at everything so they exempt offerings which do not constitute a “public offering”. Strict adherence to the provisions of the law, however, is expected and is scrutinized by the SEC. This exemption provision of the Act of ’33 lies within Regulation D.

Regulation D describes the type and number of investors who may purchase the issue, the dollar limitations on the issue, the manner of sale, and the limited disclosure requirements. Bear in mind at all times that from the issuer’s viewpoint, the principal justification for doing a private, rather than public offering, is to save time and money, not to evade the law.

NOTE: Remember, it is just as illegal to use fraud to sell a Regulation D issue as it is in a public issue. However, if done correctly, a Regulation D can save time and money, and six separate rules (501-506).




The Rules

Rule 501: Accredited investors are defined as: corporations and partnerships with net worth of $5,000,000 not formed for the purpose of making the investment; corporate or partnership “insiders”; individuals and medical professionals with a net worth (individual or joint) in excess of $1,000,000; individuals with income in excess of $200,000 (or joint income of $300,000) in each of the last two years, with a reasonable expectation of having income in excess of $200,000 (joint income of $300,000) in the year of purchase; and any entity 100% owned by accredited investors. 

Rule 502: The violations of aggregation and integration are defined:

Aggregation: Sales of securities in violation of the dollar limitations imposed under Rules 504 and 505 (506 has no dollar limitations).

Integration: Sales of securities to a large number of non-accredited investors, in violation of the “purchaser limitations” set forth in Rules 505 and 506 (504 has no “purchaser limitations”). 

Rule 503: Sets forth notification requirements. An issuer will be considered in violation of Regulation D, and therefore subject to Federal penalties, if a Form D is not filed within 15 days after the Regulation D offering commences. 

Rule 504: Enables a non-reporting company to raise up to $1,000,000 in a 12-month period without undergoing the time land expense of an SEC registration. Any number of accredited and non-accredited investors may purchase a 504 issue. 

Rule 505: Enables corporations to raise up to $5,000,000 in a 12-month period without a registration. The “purchaser limitation” rule does apply here. It states that the number of non-accredited investors cannot exceed 35. Obviously, we would have few problems if only medical investors in private placements were accredited investors, but that is not always the case. Since we are limited to a maximum of 35 non-accredited investors, how we count the purchasers becomes an important consideration. The SEC states that if a husband and wife each purchase securities in a private placement for their own accounts, they count as one non- accredited investor, not two. It would also be true that if these securities were purchased in UGMA accounts for their dependent children, we would still be counting only one non- accredited investor. In the case of a partnership, it depends upon the purpose of the partnership. If the partnership was formed solely to make this investment, then each of the partners counts as an individual accredited or non-accredited investor based upon their own personal status, but if the partnership served some other purpose, such as a law firm, then it would only count as one purchaser.

Rule 506: Differs from 505 in two significant ways. The dollar limit is waived and the issuer must take steps to assure itself that, if sales are to be made to non-accredited investors, those investors meet tests of investment “sophistication”.

Generally speaking, this means that either the individual non-accredited investor has investment savvy and experience with this kind of offering, or he is represented by someone who has the requisite sophistication. This representative, normally a financial professional, such as an investment advisor, accountant, or attorney, is referred to in the securities business as a Purchaser Representative.

Regulation D further states that no public advertising or solicitation of any kind is permitted. A tombstone ad may be used to advertise the completion of a private placement, not to announce the availability of the issue. As a practical matter, however, whether required by the SEC or not, a Private Offering Memorandum for a limited partnership, for example, is normally prepared and furnished so that all investors receive disclosure upon which to base an investment judgment.

If any of the provisions of the Securities Act of 1933 are violated by an issuer, underwriter, or investor, this is known as “statutory underwriting” of underwriting securities in violation of statute. One who violates the ’33 Act is known as a statutory underwriter. One all too common example of this occurs when a purchaser of a Regulation D offering offers his unregistered securities for re-sale in violation of SEC Rule 144, an explanation of which is given below.

In simple English, SEC Rule 144 was created so that certain re-sales of already-existing securities could be made without having to file a complete registration statement with the SEC. The time and money involved in having to file such a registration is usually so prohibitive as to make it uneconomical for the individual seller. What kinds of re-sales are covered by Rule 144 and are important to the medical investor? Let’s first define a few terms. 

Restricted Securities: Are unregistered Securities purchased by an investor in a private placement. It is also called Letter Securities or Legend Securities referring to the fact that purchasers must sign an “Investment Letter” attesting to their understanding of the restrictions upon re-sale and to the “Legend” placed upon the certificates indicating restriction upon resale. 

Control Person: A corporate director, officer, greater than 10% voting Stockholder, or the spouse of any of the preceding, are loosely referred to as Insiders or Affiliates due to their unique status within the issuer. 

Control Stock: Stock held by a control person. What makes it control stock is who owns it, not so much how they acquired it. 

Non-Affiliate: An investor who is not a control person and has no other affiliation with the issuer other than as an owner of securities.

Rule 144 says that restricted securities cannot be offered for re-sale by any owner without first filing a registration statement with the SEC:

  1. unless the securities have been held in a fully paid-for status for at least two years;
  2. unless a notice of Sale is filed with the SEC at the time of sale and demonstrating compliance with Rule 144
  3. unless small certain quantity apply: 





  • Rule 500 – Use of Regulation D
  • Rule 501 – Definitions and terms used in Regulation D
  • Rule 502 – General conditions to be met
  • Rule 503 – Filing of notice of sales
  • Rule 504 – Exemption for offerings not exceeding $5,000,000
  • Rule 505 – No longer availible effective May 22, 2017
  • Rule 506 – Exemption for unlimited offering
  • Rule 507 – Disqualifying provision relating to exemptions 504, 505 and 506
  • Rule 508– Insignificant deviations from a term, condition or requirement of Regulation D


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2021 TAXES: 8 Things All Physicians Must Know

By Staff Reporters



Here are eight things to keep in mind as you prepare to file your 2021 taxes.

1. Income tax brackets have shifted a bit

There are still seven tax rates, but the income ranges (tax brackets) for each rate have shifted slightly to account for inflation. For 2021, the following rates and income ranges apply:

Tax rateTaxable income brackets: Single filersTaxable income brackets: Married couples filing jointly (and qualifying widows or widowers) 
10%$0 to $9,950$0 to $19,900
12%$9,951 to $40,525$19,901 to $81,050
22%$40,526 to $86,375$81,051 to $172,750
24%$86,376 to $164,925$172,751 to $329,850
32%$164,926 to $209,425$329,851 to $418,850
35%$209,426 to $523,600$418,851 to $628,300
37%$523,601 or more$628,301 or more

Source: Internal Revenue Service

2. The standard deduction has increased slightly

After an inflation adjustment, the 2021 standard deduction has increased slightly to $12,550 for single filers and married couples filing separately and $18,800 for single heads of household, who are generally unmarried with one or more dependents. For married couples filing jointly, the standard deduction has risen to $25,100.

3. Itemized deductions remain the same

For most filers, taking the higher standard deduction is more practical and saves the hassle of keeping track of receipts. But if you have enough tax-deductible expenses, you might benefit from itemizing.

The following rules for itemized deductions haven’t changed much for 2021, but they’re still worth pointing out.

  • State and local taxes: The deduction for state and local income taxes, property taxes, and real estate taxes is capped at $10,000. 
  • Mortgage interest deduction: The mortgage interest deduction is limited to $750,000 of indebtedness. But people who had $1,000,000 of home mortgage debt before December 16, 2017, will still be able to deduct the interest on that loan. 
  • Medical expenses: Only medical expenses that exceed 7.5% of adjusted gross income (AGI) can be deducted in 2021. 
  • Charitable donations: The cash donation limit of 100% of AGI remains in place for 2021, if donations were made to operating charities.1
  • Miscellaneous deductions: No miscellaneous itemized deductions are allowed. 

4. IRA and 401(k) contribution limits remain the same 

The traditional IRA and Roth contribution limits in 2021 remain the same as in 2020. Individuals can contribute up to $6,000 to an IRA, and those age 50 and older also qualify to make an additional $1,000 catch-up contribution. If you’re able to max out your IRA, consider doing so—you may qualify to deduct some or all of your contribution.

The 2021 contribution limit for 401(k) accounts also stays at $19,500. If you’re age 50 or older, you qualify to make an additional $6,500 catch-up contribution as well.

5. You can save a bit more in your health savings account (HSA) 

For 2021, the max you can contribute into an HSA is $3,600 for an individual (up $50 from 2020) and $7,200 for a family (up $100). People age 55 and older can contribute an extra $1,000 catch-up contribution.

To be eligible for an HSA, you must be enrolled in a high-deductible health plan (which usually has lower premiums as well). Learn more about the benefits of an HSA

6. The Child Tax Credit has been expanded 

For 2021, the American Rescue Plan Act (ARPA) has temporarily modified the Child Tax Credit requirements and amounts for household incomes below $75,000 for single filers and $150,000 for married filing jointly. 

First, the ARPA has raised the age limit for dependents from 16 to 17. In addition, the child tax credit has increased from $2,000 to $3,000 for children age 6 through 17 and up to $3,600 for children under 6. If your income exceeded the above limits but was below $200,000 for single filers or $400,000 for joint filers, you’ll receive the standard child tax credit of $2,000 per child. 

The IRS began sending monthly advance Child Tax Credit payments to eligible families in July and sent its last advance in December. If your dependent didn’t qualify for the child tax credit, you may still qualify for up to $500 of tax credits under the “credit for other dependents” (see IRS Publication 972 for more details). Tax credits, which reduce the tax you owe dollar for dollar, are generally better than deductions, which reduce your taxable income. 

7. The alternative minimum tax (AMT) exemption has gone up

Until the AMT exemption enacted by the Tax Cuts and Jobs Act expires in 2025, the AMT will continue to affect mostly households with incomes over $500,000. Still, the AMT has investment implications for some high earners. 

For 2021, the AMT exemptions are $73,600 for single filers and $114,600 for married taxpayers filing jointly. The phase-out thresholds are $1,047,200 for married taxpayers filing a joint return and $523,600 for all other taxpayers.  

8. The estate tax exemption is even higher

The estate and gift tax exemption, which is indexed to inflation, has risen to $11.7 million for 2021. But the now-higher exemption is set to expire at the end of 2025, meaning it could be essentially cut in half at that time if Congress doesn’t act. 

The annual gift exclusion, which allows you to give money to your loved ones each year without incurring any tax liability or using up any of your lifetime estate and gift tax exemption, stays at $15,000 per recipient.

Don’t get caught off guard

As you prepare to file your taxes for 2021, here are a few additional items to consider. 

  • If you’re not retired, the 10% early withdrawal penalty that was waived for retirement account distributions in 2020 has been reinstated for 2021.
  • If you’re age 72 or older, make sure you’ve taken your required minimum distribution (RMD) from your retirement accounts or else you face a 50% penalty on any undistributed funds (unless it’s your first RMD, in which case, you can wait until April 1, 2022).

If you haven’t contributed to your retirement accounts already, now is the time. Review your earnings for the year and take advantage of any deductions that can lower your tax bill. Also, keep an eye on Washington for any last-minute tax changes that could affect your return before you file. Tax season will be here before you know it, and it’s never too early to start preparing.

1Operating charities, or qualifying public charities, are defined by Internal Revenue Code section 170(b)(1)(A). You can use the Tax Exempt Organization Search tool on to check an organization’s eligibility.





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