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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
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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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