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    General Solicitation under New Rule 506: Crowd Funding on Steroids
    General Solicitation under New Rule 506: Crowd Funding on Steroids
    General Solicitation under New Rule 506: Crowd Funding on Steroids
    Ebook53 pages24 minutes

    General Solicitation under New Rule 506: Crowd Funding on Steroids

    By Private Placement Handbook Series

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    About this ebook

    The SEC has lifted an 80-year ban on general solicitation and start-ups and other Issuers for the first time can use public advertising to sell private offerings. Startups are now able to use advertising and general solicitations to fund private placements! The new Rule 506 may prove to be the answer to the prayers of startups frustrated with existing fund sourcing platforms. But it also has hidden dangers that will cause many issuers to continue to use the “old Rule 506.”

    LanguageEnglish
    PublisherPrivate Placement Handbook Series
    Release dateSep 13, 2015
    ISBN9781311964793
    General Solicitation under New Rule 506: Crowd Funding on Steroids
    Author

    Private Placement Handbook Series

    After getting a JD from Stanford Law School, a MA from the University of Chicago, a diploma from the University College London, and working as a reporter for The Wall Street Journal, Doug was a member of the California bar for 40 years, during which time he founded a series of law reporting services now owned by Thomson-Reuters. Doug specializes in debt and equity crowdfunding. He helps small business identify and solicit sources of private equity. Doug monitors a LinkedIn discussion group, State Securities Regulation, with 1500 members. Connect with Douglas Slain: LinkedIn: http://linkedin.com/in/douglasslain Facebook: http://facebook.com/douglas.slain Twitter: https://twitter.com/exemptofferings Blog: http://www.privateplacementadvisors.com/apps/blog Web site: http://privateplacementadvisors.com

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    Book preview

    General Solicitation under New Rule 506 - Private Placement Handbook Series

    CHAPTER ONE: New Rules

    The new Rule 506 changes everything.

    The SEC has lifted an 80-year ban on general solicitation and start-ups and other Issuers for the first time can use public advertising to sell private offerings. Startups are now able to use advertising and general solicitations to fund private placements!

    The new Rule 506 may prove to be the answer to the prayers of startups frustrated with existing fund sourcing platforms. But it also has hidden dangers that will cause many issuers to continue to use the old Rule 506.

    Among the new Rule 506 strengths, observe:

    The amount that can be raised is unlimited

    There is no requirement for review of the offering under any Blue Sky laws (state securities regulations)

    There is no review of the offering by the SEC

    Solicitations can be online or offline

    Solicitations can be made to anyone!

    Sales (as opposed to solicitations) must be to accredited investors, and issuers must be able to verify that any actual investor is accredited. Also, proposed rules will require issuers to send the SEC all marketing copy; as of this writing, however, there is no need to send copies of solicitation materials to the SEC (or to state regulators).

    Soon you will start to see the following:

    Emails asking if you might be interested in learning about investing in someone’s project

    Videos of founders and entrepreneurs soliciting your interest in their projects

    Links on websites inviting you to click through to learn more about an investment

    Mobile apps with increasingly creative solicitation

    Private placement memorandum and related offering documents continue to be mandatory.

    Investment funds now will have access to a much wider pool of potential investors than before, subject to separate rules and regulations promulgated by their own, separate regulators.

    CHAPTER TWO: Rule 506 Questions and Answers

    Q: How have private offerings been sold historically?

    Rule 506 of Regulations D establishes a safe harbor under Section 4(a) (2) of the Securities Act of 1933 for sales of securities not involving a public offering. Compliance with Rule 506 means an issuer does not need to register with the SEC or any state neither securities regulator, nor does it need to file reports with the SEC, other than a Form D within 15 days of the first sale of any offering. Under the existing Rule 506 exemption, which some issuers will opt to continue to use, an issuer may sell an unlimited number of securities under the following conditions:

    the issuer may not use general solicitation or general advertising;

    the issuer may sell to an unlimited number of accredited investors, but only up to 35 other investors who are sophisticated;

    if non-accredited investors are included in the offering, additional disclosures are made to them; and

    the securities issued are restricted.

    Q: How will most private offerings be sold in the future?

    The new Rule 506

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