Corporate Finance & Securities

Raising Capital from Foreign Investors—Regulation S

If you’re a founder of a U.S. company thinking about raising capital from foreign investors, chances are good that you’ll want to utilize Regulation S.

Foreign Currency

There’s a general rule in the United States that if you want to sell stock in your business, you have to register the stock offering with the SEC. The registration process is cost-prohibitive for startups. Luckily, there are a number of commonly used exemptions. If you’re offering stock to US residents, you’ll likely be relying on a Regulation D exemption like Rule 506. Regulation S is a commonly used exemption for US companies that want to sell their stock to foreign investors.

There are two key parts to the Regulation S exemption:

  1. The sale of securities must be an offshore transaction.
  2. There must be no directed selling efforts that target the US market.

Offshore Transactions
A sale of securities counts as an offshore transaction if two conditions are met:

  • No offer is made to a person in the United States; and
  • One of the following is true:
    • At the time the securities are purchased, the purchaser is physically outside the US or the seller reasonably believes that the purchaser is physically outside the US; or
    • The transaction is executed on a foreign exchange and the seller is not aware that the transaction has been arranged with a US purchaser

There are a couple of further caveats: If the sale of securities is targeted at US citizens abroad, the sale does not count as an offshore transaction, and conversely, offerings may count as an offshore transaction if they are made to people physically present in the US who are not within Regulation S’s definition of a “US person.” The US person definition includes US residents, US companies, and US trusts and estates, among others.

Directed Selling Efforts
An action does not qualify as exempt under Regulation S if any actions are taken in connection with the offering for the purpose of “conditioning” the US market for the sale of the securities. Offerors cannot do any of the following: advertise the offering in the US, mail printed materials to US investors, have promotional seminars in the US, or make offers to US citizens. However, companies can initiate selling efforts from the US if the efforts are directed abroad.

Resale Restrictions
Securities sold under Regulation S are subject to resale restrictions. The nature of the restrictions depends on a number of factors including: whether the company selling the stock is foreign or domestic; whether the issuer is a public company; the types of securities being sold; and whether there is a “substantial US market interest.” The securities being sold must contain a legend stating that the securities may not be resold to US investors for a restricted period of time.

Combined Regulation S and Regulation D Offerings
Regulation S may be conducted concurrently with Regulation D offerings without the offerings being deemed to be integrated.

If you have questions about how to raise money from foreign investors, feel free to give us a call at (206) 745-5229 or to send us an email at

Photo: epSos .de | Flickr


Kyle Hulten

When I'm not in the office I enjoy cooking, gardening, and watching my toddler son explore his little universe.

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