This week, rules went into effect that fundamentally alter how private securities offerings are conducted.
Private offerings always prohibited any sort of general solicitation or advertising, which made it very difficult for small- and middle- market businesses to raise capital to grow. But, as a result of Congress’ enactment of the Jumpstart Our Business Startups (JOBS) Act in 2012, the U.S. Securities and Exchange Commission repealed the ban on general solicitation and advertising in connection with private offerings of securities under Rule 506 of Regulation D.
Under revised Rule 506, companies may engage in general solicitation and advertising in connection with a private securities offering and still qualify for the registration exemption so long as all of the investors purchasing securities in the offering are “accredited investors.” Under the SEC’s rules, individuals generally qualify as “accredited investors” if their net worth exceeds $1 million (excluding the value of their primary residence) or if they have had annual income greater than $200,000 (or $300,000 jointly with their spouse) for the past two years and expect to earn that in the coming year.
A company that elects to conduct an offering under revised Rule 506 and use general solicitation and advertising must take “reasonable steps” to verify that the investors are in fact “accredited.”
While there is a lot of gray area as to what these “reasonable steps” may entail, the SEC did provide a few nonexclusive safe harbors that companies can use to ensure that they have taken sufficient verification measures, such as reviewing copies of any IRS form that reports the income of the investor or receiving written verification from the investor’s registered broker-dealer, attorney, or certified public accountant.
We expect that the repeal of the ban on general solicitation and advertising will significantly increase the capital raised by small and middle market businesses. Because Florida is home to many small- and middle-market businesses, we anticipate that revised Rule 506 will have a disproportionate benefit to Florida-based businesses.
If you have any questions with regard to the revised Rule 506, please contact a member of Gunster’s securities and corporate governance team.
|
This publication is for general information only. It is not legal advice, and legal counsel should be contacted before any action is taken that might be influenced by this publication. Gunster, Florida’s law firm for business, provides full-service legal counsel to leading organizations and individuals from its 11 offices statewide. Established in 1925, the firm has expanded, diversified and evolved, but always with a singular focus: Florida and its client’s stake in it. A magnet for business-savvy attorneys who embrace collaboration for the greatest advantage of clients, Gunster’s growth has not been at the expense of personalized service, but because of it. The firm serves clients from its offices in Fort Lauderdale, Jacksonville, Miami, Orlando, Palm Beach, Stuart, Tallahassee, Tampa, The Florida Keys, Vero Beach and its headquarters in West Palm Beach. With more than 160 attorneys and 200 committed support staff, Gunster is ranked among the National Law Journal’s list of the 350 largest law firms. More information about its practice areas, offices and insider’s view newsletters is available at www.gunster.com. |
