Can I Use an Online Portal For My Rule 506(c) Offering?

Online Platforms for Rule 506(c) Offerings

The most common exemption from SEC Registration is Rule 506(c) of Regulation D which provides for two unique exemptions from SEC registration that allow the issuer to raise unlimited amounts of capital if it complies with the specific requirements of each rule. Rule 506(b) permits sales to up to 35 non-accredited investors and an unlimited number of accredited investors while Rule 506(c) allows sales to be using general solicitation and advertising so long as the issuer verifies that all investors are accredited purchasers. The JOBS Act provided a limited exemption for online investment platforms from registration as a broker-dealer for certain offerings made pursuant to  506(c) of Regulation D. This exemption from broker-dealer registration is available if the person:

• maintains an online platform that permits the offer, sale, purchase, or negotiation of or with respect to securities, or permits general solicitation or advertisements by issuers of such securities,
• co-invests in such securities; or
• provides ancillary services with respect to such securities.

Neither the person or the online platform can receive compensation in connection with the purchase or sale of the security and they cannot hold customer funds or securities in connection with the purchase or sale of the security. 

The Rule 506(c) Exemption

Under Rule 506(c), a company can broadly solicit and generally advertise the offering and still be deemed to be in compliance with the exemption’s requirements if:

• The investors in the offering are all accredited investors; and
• The company takes reasonable steps to verify that the investors are accredited investors, which could include reviewing documentation, such as W-2s, tax returns, bank and brokerage statements, credit reports and the like.

Purchasers of securities offered pursuant to Rule 506(c) offerings  receive “restricted” securities, meaning that the securities cannot be sold for at least six months or a year without registering them. Companies that comply with the requirements of Rule 506(c) do not have to register their offering of securities with the SEC, but they must file what is known as a “Form D” electronically with the SEC.

The bad actor provisions of Rule 501 for certain covered persons applies to both Rule 506(c) offerings as well as the Rule 506 exception for online platforms.

For further information about this securities law blog post and Rule 506 offerings, please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real S, Suite 202 N, Boca Raton, Florida, (561) 416-8956, by email at [email protected] or visit www.securitieslawyer101.com.   This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute, legal advice on any specific matter, nor does this message create an attorney-client relationship. Please note that the prior results discussed herein do not guarantee similar outcomes.

Hamilton & Associates | Securities Lawyers
Brenda Hamilton, Securities Attorney
101 Plaza Real South, Suite 202 North
Boca Raton, Florida 33432
Telephone: (561) 416-8956
Facsimile: (561) 416-2855
www.SecuritiesLawyer101.com