What are the General Conditions for a Regulation S Offering?

What is Regulation S?

Under Regulation S, certain offers and sales of securities occurring outside of the United States are not subject to the registration requirements contained in Section 5 of the Securities Act of 1933 (“Securities Act”).

Regulation S sets forth some non-exclusive safe harbors for extraterritorial offers, sales, and resales of securities under Rules 903 and 904 of the Securities Act.

General Conditions of Regulation S Offerings

In general, an offering may qualify for an exemption from registration under Regulation S if it meets the following two conditions:

  1. The offer or sale is made in an “offshore transaction”; and
  2. There are no “directed selling efforts” in the United States.

What is an Offshore Transaction under Regulation S?

An Offshore Transaction under Regulation S is defined as one in which:

  1. The offer is not made to a person in the United States; and either
  2. The Buyer is outside the United States, or
  3. The Seller and any person acting on the Seller’s behalf reasonably believe that the Buyer is outside the United States; or
  4. The transaction is executed in, on or through a physical trading floor of an established foreign securities exchange that is located outside the United States; and
  5. Neither the seller nor any person acting on its behalf knows that the transaction has been pre-arranged with a buyer in the United States.

What are Directed Selling Efforts under Regulation S?

Under Regulation S, Directed Selling Efforts refers to any activity related to “conditioning the market” in the United States for any of the securities being offered in reliance on Regulation S.

An example of Directed Selling Efforts could include placing an advertisement in a publication “with a general circulation in the United States” that refers to the offering of securities being made in reliance upon Regulation S.

Another example of Direct Selling Efforts could be the use of a website directed to US Persons, which does not include express disclaimers stating that that Reg S Offering is not intended for or available to US Persons.

Regulation S Securities Attorney Matheau J. W. Stout, Esq.

Securities lawyer Matt Stout is available to answer questions regarding compliance with Regulation S Offerings and the process of clearing and depositing restricted stock sold under Reg S at (410) 429-7076 or mstout@otclawyers.com.

OTC Bulletin Board and OTC Markets Issuers seeking advice on a Regulation S Private Placement directed to Non US Persons can contact Matheau J. W. Stout, Esq. for a free consultation to discuss best practices for the PPM.