- Major SEC Rule Change Opens New Era for Equity Fundraising
- October 25, 2013 | Authors: Lee A. Harkavy; Jordan E. Reifler; Aaron D. Zibart
- Law Firms: Wyatt, Tarrant & Combs, LLP - Memphis Office ; Wyatt, Tarrant & Combs, LLP - Louisville Office
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.