Generally speaking, companies seeking to raise capital through the sale of securities must either register the securities offering with the SEC or rely on an exemption from registration. Rule 506 of Regulation D is the most commonly used exemption; it permits the sale of an unlimited dollar amount of securities to an unlimited number of “accredited investors” and up to 35 non-accredited investors without federal Securities Act registration, provided the requirements of the rule are satisfied.
In April 2012, Congress passed the Jumpstart Our Business Startups Act (the “JOBS Act”). At the time, most commentators believed that the JOBS Act would create tremendous new opportunities for emerging growth businesses.
On July 10, 2013, the SEC adopted final rules implementing part of the JOBS Act and relaxing some of the restrictions on offering securities under Rule 506 of Regulation D. These new rules lift the 80-year ban on general solicitation and advertising ofprivate offerings of securities under Rule 506 of Regulation D. However, the ban is only lifted on Rule 506 offerings if: (1) sales of the securities are limited to accredited investors; and (2) an issuer takes reasonable steps to verify that all purchasers of the securities are accredited investors.