Exempt Offerings and Restricted Stock

Registration is expensive, so most capital in the United States is actually raised under an exemption from it. Four matter to this book’s reader:

Regulation D, Rule 506(b) and 506(c)

The workhorse. Unlimited capital from accredited investors (section “Private Equity”), with 506(b) prohibiting general solicitation and permitting up to 35 sophisticated non-accredited investors, and 506(c) permitting public advertising in exchange for the issuer having to verify your accredited status rather than accept your check-the-box representation. Nearly every private fund, angel round, and real-estate syndication you will be shown is one of these two.

Regulation A+

A “mini-IPO” allowing up to $75 million a year with lighter reporting. Occasionally legitimate, frequently used to retail illiquid assets to people who do not understand them.

Regulation Crowdfunding

Up to $5 million a year from ordinary investors through a funding portal, with dollar caps tied to the investor’s own income and net worth.

The consequence you will actually feel is on the exit. Stock acquired in an exempt offering — including founder shares and most pre-IPO equity — is restricted and cannot simply be sold. Rule 144 provides the safe harbor: a six-month holding period for securities of a reporting company (one year if the issuer does not report), plus, if you are an affiliate — an officer, director, or large holder — ongoing volume limits of the greater of 1% of shares outstanding or the average weekly trading volume per three months, sales through a broker, and a Form 144 filing. If you hold founder or early-employee stock, map your Rule 144 eligibility and affiliate status before you build any liquidity plan around it, because the hedging structures in chapter “Derivatives” assume you could sell if you chose to, and a restricted holder frequently cannot.