Sponsors with an international investor list run into a question that does not appear in most real estate syndication checklists: is a Canadian LP’s check a Reg D sale, a Reg S sale, or something that requires both? The answer decides which disclosures appear on the cover page of the PPM, whether the issuer needs a verification process, and how long the securities are locked up before they can be resold.
Regulation D and Regulation S are not substitutes. They operate in different hemispheres, sometimes literally. Reg D provides exemptions from registration under the Securities Act for offerings made within the United States. Reg S provides a safe harbor for offerings made outside the United States. For an international sponsor or a US sponsor with offshore capital, both can and often do appear on the same capitalization table.
This guide walks through what each rule actually does, the three Reg S categories and their implications, how combined Reg D / Reg S offerings work in practice, and what the private placement memorandum looks like when both are running side by side.
Two regulations, two worlds
The Securities Act of 1933 requires every sale of a security to be either registered with the SEC or exempt from registration. Reg D (rules 504, 506(b), 506(c)) carves out exemptions for private placements sold to US investors — mostly accredited ones. Reg S, by contrast, says that the Securities Act does not evenapply to offers and sales made in transactions that occur offshore. The two regimes answer different questions:
- Reg D: “This sale is to a US person; here is the exemption from registration.”
- Reg S: “This sale is not to a US person and occurs offshore; registration does not apply.”
The key vocabulary word is US person, defined in Rule 902 of Reg S. A US person includes any natural person resident in the United States, any partnership or corporation organized under US law, and a handful of other categories (estates with a US executor, trusts with a US trustee, and so on). A Canadian citizen living in Toronto is a non-US person. A Canadian citizen on a visa in Miami is a US person. Residency, not citizenship, is what drives the classification.
Regulation D in one paragraph
Reg D is the domestic private placement regime. For most serious raises, sponsors use Rule 506(b) (private, no general solicitation, up to 35 non-accredited investors) or Rule 506(c) (public solicitation permitted but all investors must be accredited and verified). An issuer relying on Reg D files a notice — Form D — with the SEC within 15 days of first sale, plus state blue-sky notice filings in the states where purchasers reside. Securities sold under Reg D are restricted securities: generally unsalable in the public market for at least six to twelve months absent an applicable resale exemption. See 506(b) vs 506(c) for the within-Reg-D decision tree.
Regulation S in one paragraph
Reg S is the offshore safe harbor. A sale qualifies when two conditions are met: (1) the offer and sale are made in an offshore transaction — generally, the buyer is not in the United States at the time of the sale — and (2) there are no directed selling efforts in the United States. If both conditions hold, the Securities Act’s registration requirement does not apply to that sale. The securities sold in a Reg S offering are subject to a “distribution compliance period” (40 days to one year, depending on the category) during which they cannot be resold into the US market.
Reg S’s three categories, briefly
Reg S divides offerings into three categories based on the issuer and the security’s US market presence:
- Category 1: Foreign issuers with no substantial US market interest in their securities. Lightest restrictions: a 40-day distribution compliance period or none, depending on the instrument. Most straightforward for non-US companies raising offshore.
- Category 2: Reporting US issuers or foreign issuers with substantial US market interest. 40-day distribution compliance period and more substantive offering restrictions.
- Category 3: Non-reporting US issuers, or debt issuers by reporting companies. The heaviest restrictions: up to a one-year distribution compliance period for equity securities, plus certification, legending, and transfer-agent stop-transfer requirements. Almost every US-sponsored private fund or syndication offering Reg S to offshore investors falls into this category.
For a typical US real estate sponsor or fund manager offering interests offshore, Category 3 is the operating reality. The practical consequence is a one-year restrictive legend on the offshore investors’ securities plus an obligation that any resale during that period happen offshore and comply with Reg S.
The combined Reg D / Reg S offering
Sponsors with a mixed investor base — US accredited LPs and offshore LPs from Canada, the UK, the Middle East, or elsewhere — typically structure a Reg D / Reg S dual offering. The single fund or SPV issues one class of securities, but sells them under two different exemptions to two different audiences. The PPM covers both.
Mechanically, this is cleaner than it sounds. The subscription package for US investors includes a Reg D accredited investor questionnaire and standard 506(b) or 506(c) representations. The subscription package for offshore investors includes Reg S representations — specifically, representations that (a) the investor is not a US person, (b) is not acquiring for the account of a US person, (c) understands the distribution compliance period, and (d) will not resell the securities into the US market during the restricted period. Both tracks close into the same fund. The cap table shows one class of securities held by a mix of US accredited and offshore subscribers.
The hardest part of a combined Reg D / Reg S raise is not the legal structure. It is disciplining your marketing so that one audience never contaminates the other.
Many sponsors run the Reg D portion as a 506(c) (with general solicitation) to simplify marketing. When the Reg D portion permits general solicitation, the SEC has taken the position that such solicitation is not automatically fatal to the Reg S offering, so long as the offshore transactions themselves satisfy the offshore transaction requirement and the issuer takes reasonable steps to prevent directed selling efforts into the United States for the Reg S portion. In practice: a general-solicitation website targeting US investors must either exclude offshore buyers or be carefully structured so that offshore subscribers do not arrive through US-targeted marketing.
The directed-selling-efforts trap
The single most common Reg S failure mode is directed selling efforts: any activity undertaken for the purpose of, or that could reasonably be expected to have the effect of, conditioning the US market for the securities. Directed selling efforts include advertisements in US publications with greater-than-nominal US circulation, promotional seminars held in the US, and US-targeted online advertising for the offshore portion.
For a combined Reg D / Reg S offering, the sponsor must maintain a firewall: Reg S investors cannot be solicited through US-targeted channels. The PPM must contain explicit language that the Reg S portion is not being offered to US persons and is not being solicited in the US. Many sponsors add a geo-blocker to their offering website that segregates US vs non-US visitors, or maintain two separate landing pages.
How the PPM drafting changes
A combined Reg D / Reg S PPM looks, structurally, like a standard private placement memorandum — executive summary, sponsor bios, target description, projections, distribution waterfall, risk factors, subscription process. What changes is the layering of disclosures.
Cover page and legend
The cover page cites both exemptions: Rule 506(b) or 506(c) under Reg D and Regulation S for the offshore tranche. A separate legend addresses the Reg S distribution compliance period and resale restrictions.
Investor qualification section
Two tracks appear: (a) US persons must qualify as accredited investors under Reg D and complete a verification process if the offering is 506(c); (b) non-US persons must certify their non-US status, confirm the offshore transaction requirement, and acknowledge the restricted period.
Risk factors
Additional risk factors cover currency exchange risk, cross-border tax treatment (US withholding tax on distributions to non-US investors, treaty benefits, FIRPTA for real estate), the illiquidity of the Reg S restrictive legend, and the possibility that an offshore investor becoming a US person mid-hold would face additional compliance obligations.
Subscription agreement
The subscription agreement either bifurcates into two forms (one for Reg D, one for Reg S) or is a single form with a conditional section that activates the Reg S representations when the subscriber indicates non-US status.
Picking the right structure
For most sponsors, the question is not “Reg D or Reg S” but “Reg D alone, or Reg D and Reg S in parallel”. The default is Reg D alone. Running Reg S in addition is worth it when:
- You have identified non-US investors in your network who want allocation.
- The expected offshore check size justifies the incremental legal cost of a Reg S addendum (typically modest — it is layering representations, not a separate PPM).
- You are comfortable operating the segregated marketing discipline the rule requires.
If none of those apply — if all your investors are US accredited and you have no offshore pipeline — skip Reg S. Adding it to a PPM for a “just in case” offshore subscriber who never arrives adds complexity without benefit.