Definition and Core Mechanics of a De Passe Offering
A de passe offering refers to a securities issuance that proceeds without completing a full registration statement under the Securities Act of 1933, relying instead on statutory exemptions and safe harbor provisions. Companies use this route when they can qualify under Regulation D, Regulation A+, or other exemptions that limit disclosure requirements and investor types. The process still requires compliance with anti-fraud rules, meaning all material information must be provided to investors and no misleading statements are permitted. The U.S. Securities and Exchange Commission outlines the conditions for these exemptions in its regulations and guidance, which are available at https://www.sec.gov/divisions/investment/mutual-funds/mutualfunds.htm.
In a de passe offering, the issuer typically files a short-form notice or relies on a Regulation D rule, such as Rule 506(c), which permits general solicitation if all purchasers are accredited investors. The company must verify the accredited status of each investor through reasonable steps, such as reviewing tax returns, bank statements, or third-party certifications. Unlike a full registration, there is no requirement to submit a lengthy prospectus or undergo the SEC's review process for effectiveness. This reduces legal and administrative costs, allowing smaller companies and startups to access capital more quickly while still adhering to federal securities laws.
Regulatory Framework and Exemption Requirements
The regulatory framework for a de passe offering is built around exemptions codified in Rules 504, 505, and 506 under Regulation D, as well as Regulation A+ tiers. Rule 504 permits raises up to a set limit within a 12-month period, while Rule 506(b) allows an unlimited amount from accredited investors and up to 35 non-accredited investors who are sophisticated. Rule 506(c) requires all investors to be accredited, and the issuer must take reasonable steps to verify that status. The SEC provides detailed compliance guidance and forms for these exemptions at https://www.sec.gov/regulationd.
Accredited Investor Standards and Verification
To participate in a de passe offering under Rule 506(c), investors must meet the accredited investor definition, which includes individuals with income exceeding $200,000 in each of the last two years or a net worth exceeding $1 million, excluding the value of their primary residence. Entities such as banks, insurance companies, and certain trusts also qualify. Issuers must document the verification process using reasonable methods, such as reviewing third-party income confirmations, credit reports, or written representations from certified public accountants. Failure to verify accreditation can result in the loss of the exemption and potential liability for the issuer.
Tier Differences in Regulation A+
Regulation A+ offers two tiers for smaller companies seeking to raise capital without a full registration. Tier 1 allows up to $20 million in a 12-month period, while Tier 2 permits up to $75 million, with Tier 2 subject to ongoing reporting requirements. Both tiers require the filing of an offering statement and the delivery of an offering circular to investors. Companies using Regulation A+ must still provide financial statements reviewed or audited depending on the tier and amount raised.
Ongoing Reporting and Compliance Obligations
Even when a de passe offering relies on an exemption, issuers may face ongoing obligations, particularly under Regulation A+ Tier 2, which requires annual reports and certain financial disclosures similar to those of registered companies. These reports must be filed with the SEC and made available to investors, ensuring continued transparency. Non-compliance with these reporting duties can lead to enforcement actions