Private Placements in South Carolina: A Primer on Federal and State Securities Registration

With an estimated 34 people moving to the Charleston area each day[1] and with South Carolina claiming one of the fastest-growing populations in the nation last year[2], the post-COVID increase in the number of private placement sponsors raising money in the Palmetto State and increase in the number of private placements being offered to South Carolina residents is not surprising. Because all securities offered for sale in South Carolina must be registered, notice-filed, or otherwise exempt from registration[3], issuers of private offerings and investors alike must understand and comply with not only the Securities Act of 1933 (the “Act”) and other applicable federal securities laws, but also South Carolina’s unique registration requirements and exemptions from registration. This article highlights select federal and South Carolina laws and regulations applicable to private placements, how federal securities laws impact South Carolina’s private placement regulatory scheme, and certain exemptions from registration with the Securities and Exchange Commission (the “SEC”) and the Securities Division of the South Carolina Attorney General’s Office (the “SCAG”).

Federal Laws Governing Private Placements

Be it a first-time fund sponsor or an investor who has had participated in several offerings, it is easy to forget that the Act requires every offer and sale of a security to either be (a) registered with the SEC; or (b) subject to an exemption for registration under the Act.[4] Seasoned issuers understand how to effectively disclaim that marketing materials are not offers of securities, to simplify the compliance obligations; however, the sale will occur and require attention to compliance with Act. Common federal exemptions under the Act that are frequently relied upon by issuers of private placements include:

• Section 4(a)2: To qualify for this exemption, issuers must assess investor sophistication and determine that each investor (a) either has sufficient knowledge and experience in business matters in order to be considered a “sophisticated” investor or be able to bear the investment’s economic risk; (b) has access to the type of information normally provided in a prospectus in a registered offering under the Act; and (c) agrees to take the securities for a long-term investment without an intent to resell.  This exemption does not allow the issuer to engage in a public offering. Importantly, this exemption only applies to federal registration requirements, and South Carolina’s “blue sky” laws may still require registration.
• Regulation D: Regulation D[5] provides multiple exemptions from registration with the SEC for private placements, which are often referred to as “Rules.” Rules 506(b) and 506(c) are most commonly relied upon by issuers.
  • Rule 506(b): Under this exemption, issuers may raise an unlimited amount of capital from accredited investors and from up to 35 unaccredited investors; however, if even one unaccredited investor participates invests, the issuer must (a) provide the unaccredited investor with more detailed information as provided in Regulation A; (b) provide unaccredited investors with certain financial statements as specified in Rule 506, and (c) answer questions for unaccredited prospective purchasers. General solicitation and advertising of the offering is not permitted, so this exemption may be preferred by issuers targeting friends, family, and other contacts they know.
  • Rule 506(c): Issuers may generally solicit and advertise an offering but must only sell to accredited investors under this exemption, so crowdfunded offerings would typically rely on this exemption (until Regulation CF was promulgated). Reasonable steps must also be taken by the issuer to verify accredited investor status. Such verification previously included the issuer obtaining proof of an investor’s income or net worth and obtaining written confirmation from select advisors.[6] On March 12, the SEC clarified that issuers may also verify accredited investor status under this exemption by using high minimum investment amounts.[7]
• Regulation A: This exemption allows issuers of private placements to raise up to $75 million, but Regulation A offerings are split into two “tiers.” Under the first tier, the issuer may raise up to $20 million with SEC and state review of the offering, and under the second tier, the issuer may raise up to $75 million with SEC qualification. State registration requirements, however, are preempted under the second tier of this exemption.

Compliance with federal requirements will limit liability and scrutiny from federal securities authorities; however, attention must be paid to the state laws in any state where investors are located.[8]

South Carolina Laws Governing Private Placements

In addition to compliance with the Act, issuers offering private placements to investors in South Carolina must also comply with the South Carolina Uniform Securities Act of 2005 (the “SC Act”).[9] Section 35-1-102(29) of the SC Act defines a “security” for purposes of South Carolina law. This definition includes not only notes, stocks, bonds, options and other common securities, but also broader concepts such as “investment contracts” and investments in a common enterprise with the expectation of profits to be derived primarily from the efforts of a person other than the investor.[10] Specifically, issuers of private placements in South Carolina must also comply with the following state laws.

• Although Rule 506(b) and Rule 506(c) exemptions under Regulation D preempt South Carolina’s registration requirements, issuers must still submit a copy of the Form D submitted to the SEC, a notice filing through the Electronic Filing Depository, and pay a filing fee. Such submission must occur no later than fifteen (15) days after the first sale in South Carolina.
• In addition to federal exemptions, private placements may find further safe harbor under South Carolina’s securities laws, including:
  • The Intrastate Offering Exemption: This exemption excuses South Carolina-based issuers from registering a private placement with the SCAG when a maximum of $5,000 is invested by any single purchaser. If the purchaser is an accredited investor, the investment limit per purchaser goes up, and a business is capped at raising $1 million annually under this crowdfunding exemption. The issuer must also pay a notice filing fee and submit the Intrastate Notice Filing Form.
  • The Limited Offering Exemption: S.C. Code Ann. § 35-1-202 lists certain exemptions that are self-executing and do not require a notice filing or a fee. The issuer, however, must prove through documentation that they actually meet the requirements of the exemption upon which the issuer is relying.
  • The Accredited Investor Exemption: C. Code Regs. § 13-205 allows issuers to offer and sell securities without complying with certain registration and disclosure requirements under S.C. Code Ann. § 35-1-301 and § 35-1-504.Only accredited investors may participate in the sale under this exemption, and South Carolina’s definition of “accredited investor” is based on the SEC’s definition, as promulgated under 17 C.F.R. § 230.501(a).
  • Regulation A, Tier 2: S.C. Code Regs. 13-205 places both a notice filing obligation and filing fee on the issuer relying on this exemption in South Carolina. At least 21 days prior to the initial sale in this state, an issuer relying on this exemption must (a) file the Uniform Notice of Regulation A – Tier 2 Offering filing form (or copies of documents filed at the SEC)[11]; (b) consent to service of process; and (c) pay a non-refundable fee of $500.00.
  • For Rule 504 offerings and the related Form D submission, issuers should (a) submit Copy of electronic Form D filed with the Securities and Exchange Commission; (b) pay a $300 filing fee made payable to the South Carolina Securities Commissioner; (c) one copy of the Private Placement Memorandum or other offering document(s); and (d) A letter indicating that the conditions of South Carolina Code of Regulations 13-204(H), indicated below, have been met:
    • The aggregate offering price for securities sold in South Carolina shall not exceed two hundred fifty thousand ($250,000.00) dollars during any twelve (12) month period;
    • The limitation on the manner of offering and resale of securities set forth in Rules 502(c) and (d) of SEC Regulation D shall be satisfied; and
    • The “sophisticated investor” qualifications for the nature of purchasers set forth in Rule 506(b)(2)(ii) of SEC Regulation D shall be satisfied.

Furthermore, any securities registration and notice filings are effective for a 12-month term.  Should the offering continue beyond the 12-month timeframe, the SCAG should be notified. When the issuer does not rely on preemption at the federal level, it is important to qualify under one of the available state level exemptions or the issuer may be subject to investigation by the SCAG. Even where preemption at the federal level applies, documenting exemptions under SC Act that would apply is good practice.

Takeaways for Issuers

If an issuer engages in either the offering or the sale of a private placement in South Carolina, compliance with not only federal law but South Carolina statutes and regulations is required. Issuers seeking to avoid an action letter from the SCAG may consider:

• Ensuring investors meet the SEC’s definition of an accredited investor when required by the South Carolina exemption and deploying proper verification methods of such status.
• Limiting the solicitation and marketing of an offering as required by the applicable South Carolina exemption.
• Be it a registration, notice filing, or fee, complying with filing deadlines with the SCAG and ensuring the offering materials contain the requisite information required by the applicable South Carolina exemption.

Otherwise, the uneducated issuer may find itself on the receiving end of enforcement an action from Alan Wilson, Attorney General for the State of South Carolina, and watch the carried interest evaporate into legal fees.

 

[1] “What Charleston’s surging population means for the local economy and housing” Charleston Business Journal, Nov. 1, 2024, Hollie Moore, https://charlestonbusiness.com/what-charlestons-surging-population-means-for-the-local-economy-and-housing/

[2] “South Carolina’s new resident numbers are skyrocketing. Here’s where transplants are going.” Post and Courier. March 13, 2025. David Slade https://www.postandcourier.com/news/south-carolina-census-growing-population/article_9f8b6fa2-f08b-11ef-813a-5f0dd107b074.html#:~:text=If%20people%20weren’t%20moving,gained%20an%20estimated%20360%2C579%20residents.

[3] S.C. Code Ann. § 35-1-301 et seq.

[4] 15 U.S.C. § 77 eee.

[5] 17 C.F.R. §230.501 et seq.

[6] See 17 CFR §§ 230.506(c)(2)(ii)(A), (B), and (C)

[7] Available at https://www.sec.gov/rules-regulations/no-action-interpretive-exemptive-letters/division-corporation-finance-no-action/latham-watkins-503c-031225.

[8] To the extent investors are located in other countries, there are additional considerations and compliance obligations at the federal level as well.

[9] S.C. Code Ann. §§35-1-101, et seq.

[10] S.C. Code Ann. §35-1-102(29).

[11] For a copy of this form, see Regulation A – Tier 2 Notice Filing Form (00755749.DOC;1)