SEC Rule 506 C

SEC Reg D Rule 506 C [email protected]

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.

Changes to SEC Rule 506 permit you to use general solicitation and general advertising to offer your securities, IF . . . You take reasonable, documented steps to verify that the investors are accredited investors and 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: has 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, or 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.

The determination of the reasonableness of the steps taken to verify an accredited investor is an objective assessment by an issuer. You must consider the facts and circumstances of each purchaser and the transaction.

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 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

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

No Limits on Funding. In a 506 C you can raise an unlimited amount of money

Persons associated with the issuer 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, other then anti-fraud, are pre-empted but you may need to file a Form D in some states

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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