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CLIENT UPDATE: Major SEC Rule Change Opens New Era for Equity Fundraising

Major SEC Rule Change Opens New Era for Equity Fundraising

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. 

UPDATE: SEC Takes First Step Toward Implementation of Equity Crowdfunding.


For more information, contact Aaron Zibart in Louisville, Lee Harkavy or Jordan Reifler in Memphis.