The Laws That Apply to a Direct Public Offering

Direct Public Offering Blog Series

An issuer conducting a registered direct public offering is subject to three federal securities laws, each with its own unique requirements.  These are the Securities Act of 1933 (the “Securities Act”), the Securities Exchange Act of 1934 (the “Exchange Act”) and the Sarbanes-Oxley Act of 2002 (”Sarbanes-Oxley”).

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.

SEC Issues Small Entity Compliance Guide For JOBS Act

The Jumpstart Our Business Startups Act, or JOBS Act, is intended, among other things, to reduce barriers to capital formation, particularly for smaller companies in going public transactions.  The JOBS Act requires the SEC to adopt rules amending existing exemptions from registration under the Securities Act of 1933 and creating new exemptions that permit issuers of securities to raise capital without SEC registration.

On July 10, 2013, the SEC adopted amendments to Rule 506 of Regulation D and Rule 144A under the Securities Act to implement the requirements of Section 201(a) of the JOBS Act.  The amendments became effective on September 23, 2013.