Integration And Limitations On Multiple Private Placements

By Author: Michael Williams
Total Articles: 6
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If you conduct multiple private placements, you run the risk that the SEC will say that what you thought were multiple, separate Private Placements was really one big Private Placement. The SEC integrates, or combines, the multiple Private Placements.

Why can multiple private placements be a problem? As described in earlier articles, each of the Rules 504, 504 and 506 have various limitations, such as the limitation on the number of Non-Accredited investors. If you cannot have more than 35 Non-Accredited investors, and in your first Private Placement you had 30 and in your second Private Placement you had another 30, and the SEC integrated these two Placements, you would have busted the Reg. D exemption and broken federal securities laws.

The SEC provides you with a very subjective test for integration, as follows:

* Whether the sales are part of a single plan of financing.
* Whether the sales involve issuance of the same class of securities.
* Whether the sales have been made at or about the same time.
* Whether the same type of consideration is being received.
* Whether the ...
... sales are made for the same general purpose.

Do not rely on these factors, as they almost never work. Instead, rely on the following “bright line” test in the Rule: Offers and sales that are made more than six months before the start of a Regulation D offering or are made more than six months after completion of a Regulation D offering will not be considered part of that Regulation D offering, so long as during those six month periods there are no offers or sales of securities by or for the issuer that are of the same or a similar class as those offered or sold under Regulation D, other than those offers or sales of securities under an employee benefit plan. To avoid busting the Reg. D exemption, make sure the last sale in your first Private Placement is more than six months before your first offer to sell in your second Private Placement.

There is one other aspect of the doctrine of Integration that is critical if you conduct a Private Placement followed within 6 months by a public offering, including a Selling Stockholder Registration Statement in a GoPublicDirect transaction rather than a reverse merger with a public shell. The bright line test is not available. So an integration of the Private Placement and the Public Offering will bust the exemption for the Private Placement.

However, there is another SEC Rule that provides additional protection, but only if your Private Placement was done under Rule 506. This is Rule 152 that provides: The phrase "transactions by an issuer not involving any public offering" in Section 4(2) shall be deemed to apply to transactions not involving any public offering at the time of said transactions although subsequently thereto the issuer decides to make a public offering and/or files a registration statement.

This means that even if your Placement ends within six months of the date of filing your registration statement, you will not have the two integrated, but only if the Placement was done under Rule 506. Why? As you’ll read in later articles, Rule 504 and 505, like Regulation A described above, are exemptions based not upon Section 4(2) but instead upon Section 3(b). This makes Rule 152 unavailable for Reg. D 504 and 505 Placements followed within six months by the filing of a Registration Statement.

Remember, you can Go Public Direct without a Reverse IPO reverse merger with public shell and save your company money and heartache. So if you are considering going public, get advice from an experienced SEC lawyer who knows the ins and outs of the entire process and can take a private company public directly without a Reverse IPO reverse merger with public shell.

This article, which does not constitute legal advice, was written for information purposes only by Michael T. Williams, Esq., an experienced SEC attorney of the Williams Securities Law Firm, P.A., Tampa FL, whose practice is primarily focused on taking companies public.