The $10,000,000 Small-Offering Exemption

Aggregate offering price counts more than cash. It includes services, property, notes, and even cancellation of debt the issuer accepts as payment for the securities, so a stock-for-debt swap counts toward the cap just like a cash sale does.

What Counts Toward the $10,000,000 Cap?

• Aggregate offering price: the sum of all cash, services, property, notes, cancellation of debt, or other consideration the issuer receives for the securities in the offering.
• The cap is $10,000,000, reduced by the aggregate offering price of securities the issuer sold under this same exemption within the 12 months before, and during, the current offering, or sold in violation of the registration requirement.

Which Issuers Cannot Use the Small-Offering Exemption?

This exemption is unavailable to an issuer that is:

• Subject to Exchange Act reporting requirements
• An investment company
• A development-stage company with no specific business plan, or one whose plan is to merge with or acquire an unidentified company, companies, or other entity or person

Exam Tip: Gotchas

• $10,000,000 is the current cap. Older material citing $5,000,000, or an even older $1,000,000, describes a superseded or repealed figure.

Can This Exemption Ever Use General Solicitation?

Regulation D's general solicitation ban still applies to this exemption, unless the offering is made:

• Exclusively in one or more states that require registration and delivery of a disclosure document, following those state procedures
• In states without such a registration procedure, if the securities are registered in at least one state that does have one, offers and sales are made in that state under its rules, and the disclosure document reaches every purchaser before sale, including purchasers in the states with no procedure of their own
• Exclusively under a state law exemption that itself permits general solicitation and advertising, so long as sales are made only to accredited investors

Exam Tip: Gotchas

• General solicitation under this exemption is the exception, not the rule. It is available only through one of the three state-law paths above, never simply because the raise is $10,000,000 or less.

Does a Disqualifying Event Elsewhere in Regulation D Reach This Exemption?

Yes. This exemption's availability ties directly to the bad-actor disqualification provision covered later in this unit. If the issuer would be disqualified under that provision on or after January 20, 2017, this exemption is unavailable too. For a disqualifying event that happened before that date, the exemption stays open and the issuer must instead disclose the event in writing to each purchaser a reasonable time before the sale.

What Should You Check on Exam Day?

• Confirm the small-offering exemption's cap is $10,000,000, net of sales in the prior 12 months, not an older $5,000,000 or $1,000,000 figure.
• Rule out Exchange Act reporting companies, investment companies, and blank-check development-stage companies as eligible issuers.
• Match general solicitation questions to one of the three specific state-law paths, not to the dollar amount alone, and on the second path confirm the disclosure document reached every purchaser.
• Remember aggregate offering price includes non-cash consideration like services, property, and cancelled debt.
• Check whether a bad-actor disqualifying event elsewhere in the offering would also close this exemption.