The Sales Compensation section (Item 12 of Form D) is critical because it identifies who is being paid to find investors. The SEC uses this to ensure that only properly registered people are getting paid “success fees” and to check for “Bad Actors.”
If you are raising the money yourself (the founders/officers) and not taking a commission, you can simply check “None.” However, if you are paying a third party, you must provide the following:
Information Needed for Each Solicitor
If you are paying someone to bring in capital, you need this data for the EDGAR form:
- Recipient Name: The name of the individual or the entity (e.g., a Broker-Dealer) receiving the fee.
- Recipient CRD Number: A unique ID from FINRA. If they don’t have one, you have to check “None,” which often raises a red flag with regulators unless they fall under a specific legal exemption.
- Associated Broker-Dealer: If the person works for a firm, you must list the firm’s name and its CRD Number.
- States of Solicitation: You must check every state where this specific person is allowed to ask for money. You can select “All States” or individual states like Michigan.
The “Bad Actor” Rule (Rule 506(d))
As of 2026, the SEC is extremely strict about who can be involved in a Reg D offering. You are required to perform a “Factual Inquiry” (due diligence) to ensure your solicitors are not “Bad Actors.”
A “Bad Actor” is anyone who has had:
- A criminal conviction related to securities in the last 10 years.
- A court injunction or restraining order involving securities.
- A “final order” from a state regulator (like Michigan’s LARA) barring them from the industry.
[!WARNING]
If a paid solicitor is a “Bad Actor,” your entire offering loses its exemption. This means your “private” deal is suddenly an “illegal unregistered public offering,” and investors could legally demand 100% of their money back (Rescission Rights).
Common Trap: “Finders” vs. “Brokers”
Many founders try to pay a “Finder” (a friend or consultant) a 5% success fee for introducing an investor.
- The Law: Generally, anyone receiving a commission based on the sale of securities must be a registered Broker-Dealer.
- The Risk: If you list a “Finder” in the Sales Compensation section who does not have a CRD number, the SEC or state regulators may flag your filing and investigate whether you are using an unlicensed broker.
Summary Checklist for Item 12:
- Check “None” if only company officers are raising money and receiving no extra pay for it.
- Verify CRD Numbers for any third-party firm you hire.
- Perform a background check on all solicitors to satisfy the “Bad Actor” due diligence requirement.
Would you like me to help you understand the “Use of Proceeds” section, where you have to disclose if any of the raised money is going back into the pockets of your officers or directors?