As required by Section 201(a) of the Jumpstart Our Business Startups (JOBS) Act, the Securities and Exchange Commission (SEC) has proposed rules under Section 4(a)(2) of the Securities Act of 1933, as amended (the Securities Act), to eliminate the prohibitions on general solicitation and general advertising for certain private placements of securities conducted in accordance with Rule 506 under the Securities Act’s Regulation D. Rule 506 provides a non-exclusive safe harbor from the registration requirements of the Securities Act for transactions by an issuer “not involving any public offering.” Under Rule 506, an issuer may offer and sell securities, without any limitation on the offering amount, to an unlimited number of accredited investors, as defined in Regulation D, and to no more than 35 non-accredited investors.
Historically, a fundamental condition of reliance on Rule 506 was that no general solicitation or advertising could take place in connection with the private placement, which greatly constrained the methods by which prospective investors could be identified to participate in a private offering. When these proposed rules required by the JOBS Act are finalized and take effect, issuers will have the option to solicit investors in their private offerings broadly through such means as Internet websites, newspaper advertisements and other widely available media, provided that the conditions of the new rule, as described below, are satisfied.
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