BizTech Law Blog
As of September 23, 2013, the ban on general solicitation has been lifted for private securities offerings exempt from federal registration under Rule 506. Entrepreneurs can now publicly advertise the sale of securities by complying with the newly-effective regulations.
General solicitation means to publicly advertise an investment opportunity in a private company using a means of mass communication. This includes communication via email, website, public speech, or even social media.
These rules are complex and any entrepreneur should seek professional guidance before engaging in any fundraising.
Here are a few key points to remember.
- (1) If you engage in public fundraising, you must restrict the investment to accredited investors only.
- (2) You must be able to document that each investor is accredited.
- (3) You must state that a publicly-advertised offering occurred as part of the Form D filing.
- (4) A public offering of securities does not automatically mean the offering will be successful.
Beware – more rules are being proposed and there will be more areas to watch out for in the near future.
One investor – Tim Ferriss – took advantage of the new rule to welcome a small number of accredited investors to invest directly in a company that he is currently investing in.
Some people are critical of the new regulations – saying that the limits on general solicitation are not in line with the spirit of the JOBS Act.
Furthermore, some angel investors are stating that they will not invest at all in any companies where general solicitation is used.
Public advertising of investments is brand new – if you have any questions or concerns regarding fundraising, general solicitation, securities offerings, or any other business question, please contact me at 517.371.8257.
