Regulation S (sometimes abbreviated to Reg S), provides a way for U.S. and non-U.S. (international) companies to raise capital outside of the United States Although it is SEC compliant, there is no required SEC registration for a Regulation S offering. However, there are methods and good practices that must be followed. A Reg S offering can issue equity or debt securities.
It is not necessary to have a company in the USA to use Reg S, only that the investment offer and sale be made to investors that are outside the U.S. Additionally, U.S. investors must not be shown the non-U.S. investor terms. Reg S investors from outside the U.S. can be of any wealth level and is not restricted to accredited or wealthy investors. This allows non-U.S. investors the opportunity to invest in a U.S. company or a non-U.S. company on a similar basis to the Regulation D terms.
The regulation includes two safe harbor provisions
- an issuer safe harbor
- a resale safe harbor
It is unlike stock issued in this manner would be part of an Initial Public Offering (IPO). Therefore, in the case of issuers for whose securities there is an existing or substantial U.S. market interest, no offers and sales are permitted to be made to U.S. persons. This includes U.S. persons physically located outside the United States. NOTE: the regulation has its own unique description of what qualifies as a U.S. person. Companies must ensure adequate protective measures are in place to prevent U.S. investors from purchasing their securities during what is known as the “distribution compliance period”. This may last for a period of one to two years.
Regulation S Examples
Trading of Reg S securities takes place on the secondary market. A list of Regulation S traded securities traded on the AIM market in the United Kingdom is available from the London Stock Exchange in Excel format.
