- Regulation D; which contains Rule 506(b)and Rule 506(c)
Under Rule 506(b), an issuer may sell its Security Token Offerings to an unlimited number of accredited investors and up to 35 other purchasers. This exemption requires investors to self-verify their accredited status and the issuer should confirm this status. Unfortunately this exemption does not allow general solicitation.
Rule 506(c) allows the sale of STO to only accredited investors, and furthermore, the STO issuer is obliged to conduct a KYC process or take "reasonable steps" to verify that the investors are indeed accredited. This is the most popular exemption because it allows general solicitation and unlimited capital raise.
Reg S exempts all STO offers and sales that are completed entirely outside the United States and made only to non-US residents. Even though this exemption can be used alongside rule 506(c), it is unpopular because it is subject to different state laws.
- Regulation A+: Reg A+ is divided into Tier i and Tier II.
Under Tier I, issuers can raise up to $20 million and it does not preempt state securities registration laws.
Under Tier II, issuers can raise up to $50 million and it preempts state securities registration laws. It is popular amongst ICO/STO, but the downside is the legal costs of going through the SEC review process and ongoing maintaining annual and semi-annual reporting requirements.
Regulation CF or the crowdfunding exemption allows STOs to be sold to both accredited and unaccredited investors. It has been popular with startups aiming to raise seed capital from unaccredited investors. A disadvantage is the limited capital raise of up to $1 million only.