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SEC Reg D Rule 506 C

Disclaimer

This is not legal or investment advice of any kind

Seek competent advice from qualified attorneys and investment bankers

Your situation may vary

The more you know about finance and business, the more you can profit

This covers the new Reg D, Rule 506 C, not old Rule 506

Now advertising is allowed for 506 C offerings

Under the pre-existing rules, advertising is not allowed under old 506, now known as 506 B

SEC Reg D, Rule 506c

Changes to SEC Rule 506 permit you to use general solicitation and general advertising to offer your securities, IF . . .

Verified Accredited Investors Only

You take reasonable, documented steps to verify that the investors are accredited investors and

Accredited at Time of Sale

All buyers are accredited investors under Regulation D, Rule 501 or you reasonably believe that the investors fall within one of the categories at the time of the sale of the securities

Definition of Accredited

Under Rule 501, a person is an accredited investor if he or she has either:

Net Worth Accredited Test

An individual net worth or joint net worth with a spouse that exceeds $1 million at the time of the purchase, excluding the value (and any related indebtedness) of a primary residence

Accredited Investor Income Test

Individual annual income over $200,000 in the two most recent years or a joint annual income with a spouse over $300,000 for those years, and a reasonable expectation of the same in the current year

Verifying Investors are Accredited

The determination of the reasonableness of the steps taken to verify an accredited investor is an objective assessment by an issuer

Facts and Circumstances

You must consider the facts and circumstances of each purchaser and the transaction

You Can Use Other Methods

The rule provides a non-exclusive list of methods that issuers may use to verify the requirement for individuals, including:

Accredited Investor Income Verification

Reviewing copies of any IRS form that reports the income of the purchaser and obtaining a written representation that the purchaser will likely continue to earn the necessary income in the current year, or

Written Verification of Accredited Investor

Written confirmation from a broker, SEC registered investment adviser, licensed attorney, or CPA that they have taken reasonable steps to verify the purchaser's accredited status

Old 506 is now 506 B

The existing provisions of the old Rule 506 as a separate exemption are not affected by the final 506 C rule

Old 506 Now 506 B

You can still do 506 offerings without the use of general solicitation or advertising and you are not subject to the new verification rule. This is now called 506 B

Filing Form D for 506 C

You must file a Form D with the SEC giving basic information on the offering

506 C Only Accredited Investors

Only accredited investors are allowed in a 506 C

No Limits on Funding

In a 506 C you can raise an unlimited amount of money

Verifying Accredited Investors

While 506 C provides a list of some ways to verify your investors are accredited, you may use other ways if reasonable and you document them

Bad Boy Provisions

Persons with a history of certain violations may be disqualified or these may have to be disclosed

Bad Boys

The company should verify that none of the insiders fall into these bad boy provisions

State Regulations

State regulations, other then anti-fraud, are pre-empted but you may need to file a Form D in some states

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Questions email me at John.Lux@ Securities-Law.info

(240) 200-4529

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