Accredited Investors and, Regulation D Rule 506(c) – Going Public Attorneys

 Rule 506(c) of Regulation D under the Securities Act of 1933, as amended, allows a company to use general solicitation and advertising to raise an unlimited amount of money from accredited investors. Companies can raise the funds themselves or use an intermediary such as an accredited crowdfunding platform.  Some companies may choose to crowdfund their own offering without the use of an intermediary by making their own general solicitation and advertising through their corporate website, social media or online advertising or other methods. But there is a catch companies must follow accredited investor verification procedures to ensure that  all purchasers qualify for that status.  The SEC has suggested several methods for accredited investor verification which can be found at this here.

This Securities Lawyer Q & A addresses common questions we receive about offerings conducted pursuant to the Accredited Crowdfunding exemption provided by Rule 506(c) .

Q. What are the maximum amounts that can be raised in a securities offering conducted in an Accredited Crowdfunding Offering made pursuant to Rule 506(c)?

A. Rule 506(c) does not limit the amount that can be raised.

Q. Can a Company advertise an offering made using the Accredited Crowdfunding exemption?

A. Yes, if you comply with the requirements of Rule 506(c) including accredited investor verification.

Q. Does my Company have to file a Form D before it advertises its offering under Rule 506(c)?

A.  No. You do not have to file a Form D prior to engaging in general solicitation or advertising.

Q. Does my company have to file its general solicitation and advertising materials with the SEC before generally soliciting?

A.  No, you do not have to file your general solicitation and advertising materials with the SEC before engaging in solicitations or advertising.

Q. Can my Company sell  up to 35 non-accredited investors if it engages in general solicitation and advertising?

A.  No.  A company cannot engage in general solicitation and advertising if it accepts funds from even one non-accredited investor. Additionally, the Company must take reasonable steps to verify that each purchaser is an accredited investor,

Q. Is there a limit on the number of purchasers who can invest in a Rule 506 (c) Offering?

A. No. Rule 506(c) will allow issuers to sell securities to an unlimited number of accredited investors if general solicitation and advertising is used. Rule 506(b) permits issuers to sell securities to up to 35 non-accredited investors and an unlimited number of accredited investors but general solicitation and/or advertising cannot be used.

Q. Can I rely on an investor certification or declarations from investors in my Rule 506(c) offering?

A.  No. Rule 506(c) requires that the issuer take reasonable steps to verify the accredited investor status of all investors.

Q. What are the new “bad actor” disqualification requirements that apply to Accredited Crowdfunding under Rule 506(c) ?

A. Rule 506(c) prohibits issuers as well as underwriters, placement agents, directors, executive officers, and certain shareholders from participating in Rule 506 offerings, if they have been convicted of, or are subject to court or administrative sanctions for, securities fraud or other violations of specified laws.

Q. Are the securities sold in offerings made under Rule 506(c) restricted securities?

A. Yes, securities sold in a Rule 506(c) offering are restricted securities.

Q. Do I have file a Form D with the SEC if I conduct a securities offering using Accredited Crowdfunding pursuant to Rule 506(c) of Regulation D?

A. Yes. While companies relying upon the Rule 506 exemption do not have to register their securities, they must file a Form D with the SEC.  This includes issuers conducting offerings under Rule 506(c).  In these offerings, Form D requirements have been expanded to include among other things, disclosure of whether general solicitation and/or advertising is used in the offering.

Implications for Issuers

Accredited crowdfunding under Rule 506 will provide new ways for small businesses to attract investors; with luck, they will help them grow more quickly and easily than before.  But Rule 506(c) has strict but manageable requirements.  The failure to understand them could result in securities laws violations.  For issuers seeking to go public, Rule 506(c) ease the burden of obtaining the shareholder base required by FINRA for a ticker symbol assignment.  Companies should seek advice from an qualified securities attorney before embarking upon the unknown.

For further information about Rule 506(c), please contact Brenda Hamilton, Securities and Crowdfunding Attorney at 101 Plaza Real S, Suite 202 N, Boca Raton, Florida, (561) 416-8956.  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