25 Sep Start-Ups Looking to Raise Capital Have New Options
Earlier this week, the Securities and Exchange Commission implemented new rules that loosen the rules on general advertising under Rule 506 of Regulation D. From the proposed regulations:
These proposed amendments are intended to enhance the Commission’s ability to evaluate the development of market practices in Rule 506 offerings and to address concerns that may arise in connection with permitting issuers to engage in general solicitation and general advertising under new paragraph (c) of Rule 506. Specifically, the proposed amendments to Regulation D would require the filing of a Form D in Rule 506(c) offerings before the issuer engages in general solicitation; require the filing of a closing amendment to Form D after the termination of any Rule 506 offering; require written general solicitation materials used in Rule 506(c) offerings to include certain legends and other disclosures; require the submission, on a temporary basis, of written general solicitation materials used in Rule 506(c) offerings to the Commission; and disqualify an issuer from relying on Rule 506 for one year for future offerings if the issuer, or any predecessor or affiliate of the issuer, did not comply, within the last five years, with Form D filing requirements in a Rule 506 offering. The proposed amendments to Form D would require an issuer to include additional information about offerings conducted in reliance on Regulation D. Finally, the proposed amendments to Rule 156 would extend the anti-fraud guidance contained in the rule to the sales literature of private funds.
Of course, the rules are not so simple. Companies and investors have some other options other than Rule 506, some with less onerous paperwork requirements.
As always, you should consult not only a lawyer but investment bankers and accountants to make sure you choose a sound, sensible method of raising capital for your needs.