506(c) Attorney

SEC Rule 506C is a fast and cheap way to raise growth capital. It allows you to advertise.



Rule 506(c) is under SEC Regulation D. Regulation D is a "safe harbor" rule for private securities offerings. In other words, it gives easy to understand standards for what is permissible and what is not.


Under Reg D, Rule 506 offers two ways to make a private offering. Under 506(b) no advertising is allowed. Under 506(c) advertising is allowed but only to accredited investor under certain rules.


506(b)

Under Rule 506(b), a company can be assured it is within the private offering exemption of the Securities Act of 1933, Section 4(a)(2), by satisfying the following standards:

The company cannot use general solicitation or advertising to market the securities;

The company may sell its securities to an unlimited number of "accredited investors" and up to 35 other purchasers. 

All non-accredited investors, either alone or with a purchaser representative, must be sophisticated. They must have sufficient knowledge and experience in financial and business matters to make them capable of evaluating the merits and risks of the prospective investment;

Companies must decide what information to give to accredited investors, so long as it does not violate the anti-fraud prohibitions of the federal securities laws. 

If you sell to non-accredited investors, you must give them disclosure documents that are generally the same as those used in registered offerings. 

If a company provides information to accredited investors, it must make this information available to non-accredited investors as well;

The company must be available to answer questions by prospective purchasers; and certain financial statement requirements must be met.

506(c)

Under Rule 506(c), a company can broadly solicit and generally advertise the offering, but still be deemed to be undertaking a private offering within Section 4(a)(2) if:

The investors in the offering are all accredited investors; and

The company has taken reasonable steps to verify that its 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 receive "restricted" securities, meaning that the securities cannot be sold for at least a year without registering them.

Companies relying on the Rule 506 exemption 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 after they first sell their securities. Form D is a brief notice that includes the names and addresses of the company’s promoters, executive officers and directors, and some details about the offering, but contains little other information about the company.
















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