► Reg D Private Placement or Crowdfunding

There was and still is a lot of excitement about Crowdfunding, but the new Regulation D Rule 506(c) methodology may be a better way to go. Many companies seeking capital would like to use the Internet for general solicitation, and it could be used with either path. While general solicitation and advertising are still not available for traditional Regulation D, Rule 506(b) offerings, general solicitation and advertising are available for new Rule 506(c) offerings, along with several other elements advantageous to the issuing company:

  1. No investor information requirements
  2. Accredited investors only (who are safer to deal with than non-accredited)
  3. General solicitation and advertising
  4. No dollar limit on offering size or amount invested
  5. Liability under general Rule 10b-5 anti‐fraud provisions for any person making untrue statements
  6. Intermediaries must be registered broker-dealers
  7. Both SEC-registered and private companies can use exemption

Alternatively, limitations under the Crowdfunding rules create certain restrictions:

  1. Information must include financial statements with CPA review or audit
  2. No restrictions on type of investors but they must show they understand their investment and are limited in dollar amount
  3. Publicity beyond the internet or “funding portal” (including social media) is restricted
  4. $1million limit on offering size; SEC may decide not to include sales to accredited investors in that limit
  5. Rule 10b-5 liability plus Section 12(a)(2)-type liability for issuer, its officers and directors and anyone “selling” (including promoting) the offering
  6. Only companies not registered with the SEC can issue
  7. Intermediaries can be funding portals or broker-dealers

Since this is not legal advice, an attorney specializing in securities law should be consulted. Though there is no information requirement, we recommend getting the company and the investor on the same page:

Company Background
Risk Factors
Financial Statements
Financial Projections
Business Valuation
Subscription Agreement