Exempt Offerings  JOBS Act Solutions

advising on exempt offerings to find investors.  

Why do start-ups fail to get funded?

Successful companies solve problems, save people money and time, or offer extraordinary health benefits, such as pioneering cancer drugs.  

After that, you need to give prospective investors a professionally-prepared set of documents. While a business plan may disclose certain information about current and planned activities, it will almost certainly not adequately describe the risk disclosures necessary to satisfy securities law. 

Even with only one or two investors you have created a security that requires an exemption from registration.

Regulation D is a government program creating exemptions to registration under the Securities Act of 1933. There are several programs that are available under SEC Regulation D. The most popular is SEC Rule 506(c. 

What is the difference between Rule 506(b and 506(c?

The Regulation D 506(c exemption shares many characteristics of the 506(b exemption -- with these exceptions

  • Advertising and general solicitation of investors is allowed.
  • Accredited investors must have a third party verification that they meet the necessary standard for income or net worth. 
  • Pre-filing” of Form D prior to advertising.

Note that the 506(b program is still available for issuers who do not need to engage in general solicitation, such as online social networking. 

The 506(c exemption allows a public offering of securities while retaining the benefits of a Regulation D exempt private placement:  lower preparation costs and less onerous interaction with the SEC and state regulators. 

Why should you bother with all this? 

Many startups and small businesses do not use SEC- and state-compliant offering documents to raise investor funds. They instead rely on a business plan or executive summary to serve as the basis of the investment and assume they will have no need to have complied with state or Federal securities law. 

This is not only unprofessional but can be very expensive and painful if the investment turns south. 

Most startups choose the Regulation D exemption program. With enactment of the JOBS Act with its SEC 506(c exemption, companies can now execute a “public offering” of their investment opportunity while retaining the low execution cost and compliance-friendly benefits of a traditional exempt offering.

Who should use a Regulation D offering

Even with only one or two investors, you need to provide the transaction framework, related disclosure documentation and investment agreements in conformity with state and Federal law.  

A Reg D offering is a good way to provide the proper transaction structure and documentation for raising debt or equity shares. 

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