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SEC Rule 506(c) Details

Rule 506© is a private placement exemption under Regulation D of the Securities Act of 1933, allowing companies to raise an unlimited amount of capital from accredited investors without registering the offering with the Securities and Exchange Commission (SEC). Here are key aspects of Rule 506©:

Accredited Investors Only: Only accredited investors, as defined by the SEC, are eligible to participate in a Rule 506© offering. Accredited investors include individuals with net worth exceeding $1 million or annual income exceeding $200,000.

General Solicitation Allowed: Unlike Rule 506(b), Rule 506© permits general solicitation and advertising, such as social media, websites, and public events, as long as all investors are accredited.

Verification of Accredited Investor Status: Issuers must take “reasonable steps” to verify the accredited investor status of each purchaser. This may include reviewing financial statements, tax returns, or other documentation.

Form D Filing: Companies must file a notice with the SEC on Form D within 15 days after the first sale of securities in the offering.

Bad Actor Disqualification: Rule 506© offerings are subject to “bad actor” disqualification provisions, which may disqualify an issuer or its affiliates from relying on the exemption if they have certain adverse events or regulatory issues.

Restricted Securities: Securities sold under Rule 506© are considered “restricted securities” and are subject to certain resale restrictions and legends.

Key Benefits: Rule 506© offers several benefits, including:

• Unlimited capital raise

• Flexibility in marketing and advertising

• Reduced paperwork and regulatory burden compared to registered offerings

• Ability to access capital quickly and efficiently

However, issuers must carefully comply with the requirements and regulations surrounding Rule 506© to avoid potential penalties and legal issues.

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Rule 506(b) of Regulation D is a private placement exemption under the Securities Act of 1933, allowing companies to raise capital from accredited and non-accredited investors without registering the offering with the Securities and Exchange Commission (SEC). Here are key aspects of the rule:

Accredited Investors: Unlimited number of accredited investors can participate in the offering.

Non-Accredited Investors: Up to 35 non-accredited investors can participate, provided they are sophisticated investors with sufficient knowledge and experience to evaluate the investment.

Disclosure Requirements: Companies must provide non-accredited investors with additional disclosure documents, similar to those required in Regulation A offerings.

No General Solicitation or Advertising: Companies cannot broadly solicit or advertise the offering to the general public.

Form D Filing: Companies must electronically file a Form D with the SEC within 15 days of the first sale of securities in the offering.

Bad Actor Disqualification: Companies are precluded from relying on the exemption if the offering involves certain felons and other “bad actors.”

Restricted Securities: Investors receive restricted securities, which cannot be freely resold without registration or an exemption.

Eligibility: Rule 506(b) is suitable for companies seeking to raise capital from a limited number of investors, such as friends, family, and existing investors, without registering the offering with the SEC.

Comparison to Rule 506©: While both rules allow for private placements, Rule 506© permits general solicitation and advertising, whereas Rule 506(b) does not.

Practical Considerations: Companies relying on Rule 506(b) must ensure they have a pre-existing relationship with non-accredited investors and cannot broadly market the offering. This rule is ideal for syndications, crowdfunding, or private placements among existing investors.

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