Private Companies Will Soon Be Required to File Form Ds Electronically - Consider Whether You Need to Obtain a CIK Code
When a company or fund sells securities in a private placement in reliance on an exemption from registration under Regulation D or Section 4(6) of the Securities Act of 1933, it is required to file a notice with the Securities and Exchange Commission (“SEC”) on Form D. The SEC has published new rules 1 which mandate electronic filing of Form Ds after a phase-in period and modify the disclosure requirements of Form D. These changes became effective on September 15, 2008.
Electronic Filing
Prior to these recent modifications, issuers could submit Form D filings to the SEC in only physical, paper copies. Currently, the SEC is phasing in electronic filing and will allow an issuer to file either electronically or on paper from September 15, 2008 to March 15, 2009. However, beginning on March 16, 2009, the SEC will require all issuers to complete Form D filings electronically.
Issuers who wish to file an electronic Form D must access EDGAR, the electronic filing system maintained by the SEC. The EDGAR system captures and tags the information provided on the Form D and, more importantly, makes the information reviewable and searchable on the SEC’s website ( www.sec.gov).
To access EDGAR, all issuers will need to obtain a CIK code from the SEC. Each issuer will need to determine whether it has been assigned a CIK number, and if not, it must obtain one prior to filing an electronic Form D. 2 Generally, a Form D must be filed with the SEC no later than 15 calendar days after the first sale of securities in an offering.
A CIK code is created and provided to an issuer when an issuer registers with the SEC as an EDGAR filer. The CIK or "Central Index Key," is a unique, public number assigned to each issuer by the SEC to distinguish entities with similar names. Each issuer also will be assigned a CCC code to use for validating its CIK code.
Issuers without a CIK must electronically file a Form ID at https://www.filermanagement.edgarfiling.sec.gov/filermgmt/Welcome/EDGARFilerMgmtMain.htm. Any issuer that already has obtained a CIK code may still have to follow a specific procedure for changing its status as "paper filer" to "electronic filer." The SEC has a webpage that an issuer can use for this process at http://www.sec.gov/divisions/corpfin/formdfiling.htm.
Revised Form D Disclosure Requirements
In the same new rules, the SEC also overhauled the disclosure requirements of Form D. The following is a list of some of the more material changes which became effective on September 15, 2008:
- The issuer may now include a limited amount of “free writing” in certain fields, to the extent it needs to clarify the information provided in that field. The SEC also has created an accompanying safe harbor from the prohibition on “general solicitation” and “general advertising” for information provided in a Form D, so long as the information is provided in good faith and the issuer made reasonable efforts to comply with the Form D requirements.
- All issuers in a multiple-issuer offering may use a single Form D filing.
- The issuer is no longer required to identify owners of 10 percent or more of a class of the issuer’s equity securities.
- Instead of providing a “business description”, the issuer may now choose a classification from a pre-established list of industries.
- Form D now asks for the issuer’s revenue range (or net asset value range for a hedge fund) – with the option for the issuer to “decline to disclose.”
- The issuer must give more specific information about the claimed registration exemption as well as information on any claimed exclusion from the definition of “investment company” under the Investment Company Act of 1940.
- The issuer must now provide the date of first sale in the offering. Also, the SEC has codified its position that, solely for the purposes of triggering the Form D filing requirement, in a minimum-maximum offering in which the subscription funds are held in escrow pending receipt of minimum subscriptions, the date of first sale occurs when the first subscription agreement is received and funds are deposited into escrow.
- The minimum investment amount accepted in the offering has been limited to the amount accepted from outside investors.
- The issuer must now disclose the CRD numbers 3 for the individuals who receive sales compensation in connection with the offering and any associated broker-dealers – provided they have CRD numbers. If a finder or other person does not have a CRD number, he or she need not obtain one to be listed on a Form D.
- The issuer is no longer required to disclose a detailed use of proceeds. Instead, the issuer must only provide information on the amounts paid for sales commissions and, separately stated, finders’ fees, and report use of proceeds only with respect to payments to executive officers, directors and promoters.
The SEC also clarified when, how and why it is appropriate to file an amendment to a previously filed Form D notice. An amendment will now only be required in the following three circumstances:
- If there is a material mistake of fact or error in a previously filed Form D, an amendment must be filed as soon as practicable after discovery of the mistake or error.
- If a change occurs in the information provided in a previously filed Form D, an amendment must be filed as soon as practicable after the change; however, no amendment is required for a change that occurs after termination of the offering. The SEC also identified several categories of information that may change without triggering an amendment requirement. These include:
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- The address of the issuer or of a promoter, director or executive officer;
- The issuer’s revenues or aggregate net asset value;
- An increase in the minimum investment amount or a decrease in the total offering amount;
- Decreases in the minimum investment amount or increases in the total offering amount of greater than 10% in the aggregate;
- The states of solicitation;
- The amount of securities sold in the offering or the amount remaining to be sold;
- The total number of non-accredited investors who have invested in the offering, but only if the change does not increase this number to more than 35;
- The total number of investors who have invested in the offering;
- A decrease in the amount of sales commissions, finders’ fees or use of proceeds payments to executive officers, directors or promoters; and
- An increase of greater than 10% in the aggregate in the amount of sales commissions, finders’ fees or use of proceeds payments to executive officers, directors or promoters.
- If the offering continues for more than a year, an amendment must be filed annually – on or before the first anniversary of the filing of the Form D or the filing of the most recent amendment.
The SEC is currently working with the NASAA 4 to achieve the capability for issuers to file Form D information both with the SEC and with designated states with a single electronic transaction.
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The foregoing is only a summary of one of the many significant recent SEC rule changes affecting capital raising for smaller companies. If you have any questions about the foregoing or about the other SEC small business initiatives, please direct them to your regular contact at Troutman Sanders LLP or to any of the persons listed in the sidebar to this release.
1 Electronic Filing and Revision of Form D, Securities Act Release No. 33-8891 (February 6, 2008) (available at http://www.sec.gov/rules/final/2008/33-8891.pdf) (Last accessed Sept. 29, 2008).
2 Please note that all public companies have already been assigned CIK numbers by the SEC, along with many private companies.