Regulation S is a safe-harbor exemption to the Securities Act of 1933 allowing for the sale of equity securities to investors outside of the United States. Use of the Reg S exemption is non-exclusive, meaning that a Reg S offering can run alongside offerings made under different safe-harbor exemptions, such as Regulation D.
As part of the Regulation S requirement that the investment offer and sale must only be made to investors that are outside the US, the issuer must ensure that US investors are not shown the non-US investor terms. The offering must also include clear restriction disclosures indicating that the securities are not available for sale to US investors.
Importantly, conducting an offering under Reg S does not give the issuer a blanket right to promote its offering in non-US jurisdictions. In order to conduct directed selling efforts in a given non-US jurisdiction, the issuer may still need to register the offering in the non-US jurisdiction targeted by their offering.
One of the key issues that the SEC is concerned about with Reg S is the potential for “flowback”, whereby securities sold outside of the United States could then return to the US through a resale process. As such, the limitations regarding resales, broken into three categories of potential transactions, are thoroughly covered in the SEC’s discussion of the regulation.
Finally, do note that Reg S is only applicable to the issue of securities registration. This means that it does not shield an issuer from any fraud liability or any potential investor information requirements such as those associated with the 1934 Exchange Act or the 1940 Investment Company Act.
