# Regulation D — Private Placement Exemptions

## What It Is

Regulation D (17 CFR 230.501-508) provides exemptions from SEC registration under the Securities Act of 1933. Rules 506(b) and 506(c) are the two main exemptions used by private funds to sell securities (LP/membership interests) without a public offering registration.

## Rule 506(b)

- **No general solicitation or advertising.** You cannot publicly market the fund. All investor contacts must come through pre-existing substantive relationships.
- **Up to 35 non-accredited investors** may participate, but in practice funds accept only accredited investors to avoid the enhanced disclosure requirements (audited financials, offering memorandum with specific disclosures similar to a registered offering).
- **Unlimited accredited investors.**
- **Self-certification accepted.** Investors can self-certify accredited status via questionnaire — no independent verification required.
- **Preempts state blue sky laws** (no state-level registration of the offering, though notice filings like Form D are still required in most states including California).

## Rule 506(c)

- **General solicitation and advertising permitted.** You can publicly market the fund (website, social media, conferences).
- **All purchasers must be accredited investors.** No non-accredited investors allowed.
- **Issuer must take reasonable steps to verify accredited status.** Self-certification is NOT sufficient. Acceptable verification methods:
  - Tax returns or W-2s for the prior two years (income test)
  - Bank/brokerage statements, credit report (net worth test)
  - Written confirmation from a registered broker-dealer, SEC-registered investment adviser, licensed CPA, or attorney
  - For existing investors in the fund who previously qualified, updated certification may suffice

## Korean Investor Considerations

- Korean investors residing outside the US can qualify as accredited investors under the same net worth/income tests. There is no citizenship requirement for accredited investor status.
- For investors solicited outside the US, Regulation S may also apply (see [Regulation S](regulation-s.md)).
- Under 506(b), pre-existing relationship must exist before any fund discussion. Building relationships through Korean business networks or personal introductions is fine; cold-calling or mass emails to Korean investor lists is not.

## Accredited Investor Thresholds (2024+)

| Test | Individual | Joint with Spouse |
|------|-----------|-------------------|
| Income | $200,000+ in each of the two most recent years, with reasonable expectation of same | $300,000+ jointly |
| Net Worth | $1,000,000+ excluding primary residence | Same, jointly |
| Professional Credentials | Series 7, 65, or 82 license holders | N/A |
| Knowledgeable Employees | Of the private fund | N/A |
| Entity | $5,000,000+ in assets, or all equity owners are accredited | N/A |

## Form D Filing

- **File Form D with the SEC** within 15 days after the first sale of securities.
- **State notice filings** required in states where investors reside. California requires filing via the Department of Financial Protection and Innovation (DFPI). Fees vary by state.
- Form D is a brief notice filing (not a registration). It discloses basic fund information, exemption relied upon, and amount sold.
- **Amendments**: File an amendment annually and when material information changes.

## Action Items for Palace Fund

1. **Choose 506(b) or 506(c).** For a small fund raising from known contacts, 506(b) is simpler — no verification burden, no advertising restrictions to worry about since you are raising from personal network.
2. **Document pre-existing relationships** (for 506(b)). Keep records of when and how you met each investor, and that the relationship predates any fund discussion.
3. **Prepare accredited investor questionnaire.** For 506(b), a self-certification questionnaire in the subscription agreement is sufficient. For 506(c), implement a verification process.
4. **File Form D** within 15 days of first closing.
5. **File state notice filings** in California and any other state where investors reside.
6. **Do not mix approaches.** If you start under 506(b), do not engage in general solicitation. Switching to 506(c) mid-raise is theoretically possible but practically complicated.