A recent SEC rule change, (Rule 506(c)) will allow advertising and general solicitation in certain unregistered securities offerings. This change will allow startups and businesses seeking investors to reach a much broader audience.
The basic requirements of the new rule are:
- All purchasers must be accredited investors (net worth of $1 million or who earn at least $200,000 a year)
- The issuer must take reasonable steps to verify that all purchasers are accredited
- No “bad actors” may be involved in the offering
The “bad actor” prohibitions will apply to all Rule 506 transactions – those relying on new Rule 506(c) and also those relying on the existing Rule 506(b) private offering exemption.
Note: These rule changes are NOT to be confused with the “crowdfunding” portion of the JOBS Act. The SEC has yet to issue the rules needed to make equity crowdfunding a reality (at least for the non-accredited crowd), so that remains off-limits for now. Stay tuned.