Under Rule 506, issuers are able to claim an exemption regarding the requirement to register securities. The United States Securities and Exchange Commission (SEC) adopted Regulation D, authorized by Title II of the JOBS Act, which created a new Rule 506(c). The new Rule 506(c) offering provisions went into effect in September 2013. The old Rule 506 is now referred to as Rule 506(b).
Let’s discuss a few comparison points below between the two rules.
The Old Rule 506(b)
The old rule, i.e. Rule 506(b), allows issuers of securities to raise unlimited amounts of money from an unlimited pool of accredited investors and up to a maximum of 35 sophisticated investors.
However, under Rule 506(b) you may not use general solicitation or advertising to make offers or sales of securities. A pre-existing relationship with investor must be demonstrated in order to prove that solicitation is not occurred. The relationship with an investor must be demonstrated to have existed prior to the selling of the securities.
The New Rule 506(c) Solution
Under the new Rule 506(c) offering provisions, you are permitted to advertise private investment opportunities, otherwise referred to as securities offerings, to investors you do not personally know – however only under certain specified conditions.The new rule, i.e. Rule 506 c offering provisions provide small issuers who want to raise between 1 million and $10 million or more powerful promotion opportunities. These issuers can advertise to anyone, but they must accept only accredited investors and comply with all Rule 506(c) provisions.
Issuers, in order to utilize Rule 506(c) provisions, must demonstrate that they have taken reasonable steps to ensure that all investors they have accepted are “accredited” under the rule’s definition at the time of making the investment.
Under the new Rule 506(c), issuers are permitted to advertise on their own websites, as well as website platforms operated by others who make a practice of prescreening viewers in order to restrict access to offerings for accredited investors exclusively.
