Yesterday, July 10th, under the provisions of the JOBS Act the SEC passed its Final Rules which amended Rule 506 and Rule 144A to lift the ban on general solicitation and advertising in offering and selling securities in a Rule 506 sale as long as all purchasers of the securities are accredited investors. Read more
Tag: PPM
SEC proposed regulations would allow general solicitation and advertising in a Rule 506 financing
Last week the SEC issued its proposed regulations to allow for public advertising and general solicitation in Rule 506 offerings.
As way of background, at this point when companies are trying to raise funds in a private offering, they typically rely on Rule 506 of Regulation D of the Securities Act of 1933, which allows for an unlimited amount of funds to be raised and minimal disclosure requirements if the securities are sold to accredited investors. Offering undertaken pursuant to Rule 506 also preempt state securities laws, except those relating to fraud and notice filing (and notice filing fee) requirements. While all of the above makes Rule 506 the “go to” securities law exemption, the main reason it was originally allowed is because it has historically only been able to be used in private offerings, where the issuer (or the broker acting for the issuer) had a pre-existing relationship with the investor.
The JOBS Act, which I’ve discussed, contained a provision which would require the SEC to promulgate regulations to allow general solicitation and advertising in Rule 506 offerings, provided that all purchasers in such offering are accredited investors.
Startup Financing – Private Placements 101
Startups need cash, no doubt about it. One of the ways to go about getting it is through a private placement. This post will give an overview of how such a placement works.
For the sale of any stock in a startup corporation, the federal and state securities regulations require registration of such securities prior to the sale, unless there is an exemption from registration that is available to the company. One of the exemptions from the registration requirements is when the securities are sold in a private placement. This is a federal exemption which preempts state regulation, save for certain notification filings and fees to be paid wherever to whatever state the company and investors are located in.