Regulation S: Overview, definition, and example
What is Regulation S?
Regulation S is a set of rules established by the U.S. Securities and Exchange Commission (SEC) that provides a safe harbor for companies offering securities outside of the United States. It outlines the conditions under which a U.S. company or foreign company can offer securities to international investors without having to register those securities with the SEC. Essentially, Regulation S helps facilitate offshore securities offerings by providing guidelines on how companies can legally raise capital from investors outside the U.S. while remaining in compliance with U.S. securities laws.
Regulation S was introduced in 1990 as part of the Securities Act of 1933, and it allows issuers to avoid the extensive and costly registration process typically required for U.S. securities offerings.
Why is Regulation S important?
Regulation S is important because it enables companies, both U.S. and foreign, to access capital from international investors without facing the burdens of U.S. securities registration requirements. It also provides clarity and legal certainty for foreign issuers looking to raise funds in global markets while maintaining compliance with U.S. laws. Regulation S helps to broaden market access, promote cross-border investment, and facilitate global business growth.
For companies, Regulation S can be a valuable tool for expanding their investor base and raising capital globally without the need to navigate the complexities of U.S. registration. For investors, it opens up opportunities to participate in international offerings and investments while ensuring compliance with securities laws.
Understanding Regulation S through an example
A U.S.-based company plans to issue shares to investors in Europe. Instead of registering the offering with the SEC, the company structures the offering to comply with Regulation S, ensuring that the offering is made to investors outside of the U.S. who are not U.S. persons. The company meets the requirements of Regulation S, such as ensuring that the securities are sold only to investors in offshore jurisdictions and that there is no directed selling effort in the U.S.
In another example, a foreign company based in the UK wants to raise funds by offering bonds to investors in Asia. By adhering to Regulation S, the company can offer the bonds to these investors without the need to register with the SEC, as long as the offering complies with the safe harbor provisions of Regulation S.
An example of Regulation S clause
Here’s how this type of clause might appear in an offering document or securities agreement:
“The securities offered hereby are being made in compliance with Regulation S under the Securities Act of 1933, and are being offered and sold exclusively to non-U.S. persons outside the United States. The securities may not be offered, sold, or otherwise transferred to U.S. persons, and the issuer has taken reasonable steps to ensure compliance with all requirements of Regulation S.”
Conclusion
Regulation S provides a pathway for companies to offer securities to international investors without the need to register with the SEC, simplifying the process of raising capital in foreign markets. By defining the requirements and conditions under which securities offerings can be made outside the U.S., Regulation S facilitates global investment opportunities and business expansion while ensuring compliance with U.S. securities laws. For both issuers and investors, Regulation S plays a key role in enabling efficient, cross-border capital raising and investment.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.