Rule 506(C) Q & A

Private placement offerings under Rule 506 of Regulation D of the Securities Act of 1933, as amended (the “Securities Act”) are a cost effective and relatively quick way for private companies to raise capital before, during and after a  going public transaction.  Rule 506(c) fundamentally changes the way unregistered offerings may be conducted. While the rule imposes stringent requirements, these requirements are manageable for issuers putting effective compliance strategies into place.

As of September 23, 2013, issuers were allowed to use general solicitation and advertising in Rule 506 (c) offerings made to accredited investors.

Rule 506(C) Verification of Accredited Investor Status

Rule 506(c) of Regulation D of the Securities Act became effective on September 23, 2013.   The rule fundamentally changes how private placements are conducted, by allowing issuers to engage in general solicitation and advertising of their private placements if specific requirements are met.

The SEC has confirmed that the Rule 506(c) exemption will not be forgiving for issuers who engage in general solicitation but fail to comply with its requirements.Even one sale to a non-accredited investor in s private placement will prevent the issuer from relying upon the exemption, making it a time bomb for issuers who fail to adopt proper compliance methods for their offerings.