Historically, the biggest difference between a registered public offering and a private placement of securities in the United States has been the prohibition of general solicitations and general advertising in connection with a private placement. This distinction is about to change and will mark a sea change in the way individual companies and funds can raise capital under the private placement exemption provided by Regulation D.
Most offerings of securities in the United States for private companies and for funds are conducted under an exemption from registration known as Regulation D. Private placements are far less expensive and can be conducted more rapidly than public offerings because there is no SEC review. One of the limitations under private placements, however, has been the strict rules against general solicitations and advertising which has limited the way private offerings are conducted and has essentially prevented on-line private placements. Under the JOBS Act passed earlier this year, Congress mandated the SEC to change the rules governing private placements to permit general solicitations and advertising if the securities are purchased only by Accredited Investors. The SEC has proposed the new rules (to be known as Rule 506 (c) under Regulation D) and the comment period for the new rules has ended. We anticipate that the final rules will be announced by the SEC in the next 30 – 60 days. Under the proposed new rules, we believe that there will be a tremendous opportunity to raise capital on-line from Accredited Investors and that it may make sense to start planning for this opportunity now.
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