Key Takeaways
- Regulation S is a safe harbor that lets a company sell securities to non-US persons in “offshore transactions” without registering the offering under the Securities Act, as long as no direct selling effort targets the US market.
- Unlike Regulation D exemptions, Regulation S does not require investors to be accredited. It’s built around where the investor and the transaction are located, not the investor’s wealth or sophistication.
- Regulation S offerings are commonly combined with a Regulation D offering (a “Reg D/Reg S” structure), letting a company raise from US accredited investors and non-US investors in the same round under two different rules.
- Getting the “offshore transaction” and “distribution compliance period” requirements wrong can blow the exemption entirely, exposing the whole offering to registration liability.
- This article is for informational purposes only and does not constitute legal advice. Reading it does not create an attorney-client relationship with Faison Law Group.
The Problem Regulation S Solves
If you’re a US company raising capital and a non-US investor wants in, you might assume your existing Reg D exemption covers them. It doesn’t, automatically. US securities law applies based on where an offer is made and to whom, and Regulation D’s exemptions are built primarily around the US definition of an “accredited investor,” a concept that doesn’t map cleanly onto every foreign investor’s actual financial profile or the disclosure regime of their home country.
Regulation S exists to solve a different problem: how a US issuer can lawfully sell securities to investors outside the United States without dragging the whole offering into a foreign patchwork of registration requirements it was never built for. It does this by creating a safe harbor for offshore transactions, sales made outside the US, to non-US persons, without directing selling efforts at the US market.
This section and all content below offers general information only and is not legal, tax, or investment advice. Outcomes depend on individual facts and circumstances, and you should consult qualified counsel for guidance specific to your situation.
The Two Things Regulation S Actually Requires
Strip away the technical language, and Reg S compliance comes down to two core requirements.
1. The transaction has to be genuinely “offshore.”
The offer and sale can’t be made to a person physically located in the United States at the time, and the issuer (or anyone acting on its behalf) can’t engage in “directed selling efforts” aimed at conditioning the US market for the securities. This isn’t about the investor’s citizenship, it’s about where the offer actually lands. A non-US citizen sitting in a US office when the offer is made doesn’t satisfy the offshore requirement.
2. There’s a distribution compliance period.
Depending on whether the issuer falls into “Category 1,” “Category 2,” or “Category 3” under the rule, investors who buy under Reg S may be restricted from reselling those securities back into the United States for a defined period, often six months to a year. This period exists to prevent a Reg S sale from becoming a backdoor way to distribute unregistered securities into the US market shortly after the fact.
Miss either of these, and the exemption doesn’t just weaken, it can fail entirely, which means the offering was technically unregistered and non-exempt the whole time.
Reg S vs. Reg D: Different Tools for Different Investors
| Regulation D | Regulation S | |
|---|---|---|
| Who it’s for | US persons (primarily) | Non-US persons, in offshore transactions |
| Core test | Investor accreditation status | Location of the offer and the investor |
| Resale restrictions | Generally 6–12 months (Rule 144) | Distribution compliance period, category-dependent |
| Can they be combined? | Yes — commonly used alongside Reg S in the same round | Yes — commonly used alongside Reg D |
| Filing requirement | Form D with the SEC | No SEC filing required |
Many growth-stage companies and funds raising internationally run a combined structure: US accredited investors come in under Reg D, non-US investors come in under Reg S, in the same financing round but under two separate legal frameworks. Structured correctly, this lets a single round reach both pools of capital. Structured carelessly, it creates integration risk, where the SEC could treat the two offerings as one and unwind the exemptions for both.
Where Founders Get This Wrong
The most common mistake isn’t ignorance of Regulation S, it’s assuming that because an investor lives abroad, any sale to them is automatically exempt. It isn’t. The offer itself has to be structured offshore, documented as offshore, and kept separate from any general solicitation aimed at the US market. A pitch deck posted publicly on a US-facing website, or a US-based advisor forwarding the deal to a foreign contact, can undermine the “no direct selling efforts” requirement without anyone realizing it happened.
Faison Law Group’s Approach
We structure Reg S offerings — standalone or combined with Reg D — so the offshore transaction requirements and distribution compliance periods are built into the offering documents from the start, not patched in after an international investor shows unexpected interest. As with everything we do, this is legal structuring and documentation. Founders and fund managers remain responsible for their own fundraising strategy and business decisions; our job is making sure the legal framework underneath it actually holds.
Related Resources
- Foreign Investors: Skip This Costly Mistake in 2025 — covers Corporate Transparency Act reporting relief for foreign-owned Delaware entities. Related to international investor considerations, though it addresses a different rule than Regulation S.
- Accredited Investors — useful companion piece for understanding the Reg D side of a combined Reg D/Reg S raise.
Frequently Asked Questions About Founder Equity
Does Regulation S require investors to be accredited?
No. Accreditation is a Reg D concept. Regulation S is based on the investor’s location and the offshore nature of the transaction, not their income or net worth.
Can I use Regulation S and Regulation D in the same funding round?
Yes, and it’s common practice — but the two offerings need to be structured so they don’t get “integrated” into a single offering by the SEC, which could unwind both exemptions.
How long is the distribution compliance period?
It depends on the issuer’s category under the rule — generally six months to a year — during which the investor is restricted from reselling the securities back into the US.
What counts as a “directed selling effort” that could break the exemption?
Any activity that could reasonably be expected to condition the US market for the securities — public solicitation reaching US persons, US-based promotion, or general advertising that isn’t properly restricted to non-US audiences.
Raising capital from investors outside the US? Schedule a free 15-minute consultation with Faison Law Group. Call (667) 423-5625 or contact us online.
This article is for informational purposes only and does not constitute legal advice. Reading this content does not create an attorney-client relationship with Faison Law Group or any of its attorneys.