Since Title II of the Jumpstart Our Business Startups Act was signed into law, business owners have been given the legal freedom to implement general solicitation or otherwise publicly fundraise. However, for a private offering between an issuer and purchaser to be considered legally-compliant, all investors must be accredited investors. Determination of investor accreditation generally involves analysis of specific income, asset, and net worth requirements to meet the definition of “accredited investor.”
When title II of the jobs act became effective, Rule 506 of the Securities Act was amended by the U.S. Securities and Exchange Commission (sec) to include Paragraph (c). Under 506(c), the restriction on general solicitation was lifted, allowing entrepreneurs the freedom to publicly seek out investors while still engaging in “private” offering under law. The key stipulation, however, is that non-accredited investors cannot purchase any of those generally solicited securities. Only investors who are certified as accredited investors can participate in such offerings.
Public Advertising Before 2013
In 1933, the Securities Act was established in the United States, which generally prohibited businesses from raising funds from investors through general solicitation unless the securities were registered. This ban continued for many years until Title II of the JOBS Act was signed into law, with the general solicitation provisions taking legal effect on September 23, 2013. Prior to the ban’s removal, business owners were vastly restricted in the methods they could utilize to collect capital. Naturally, this negatively impacted companies that needed investor funding, and stifled their chances of expanding and becoming successful.
Much Needed Freedom
Now, with the ban on general solicitation and public advertisement a thing of the past, new startups and growing companies are free to advertise and reach out to accredited investors without fear of breaking securities laws. Business owners can use the internet and other platforms to broadcast their need for capital, and organize “private” offerings with investors properly certified as accredited investors. Additionally, business entrepreneurs conducting Rule 506(c) private offerings with accredited investors don’t have to register the securities with the SEC. This not only prevents additional hassle, but saves them from the hefty costs and burden associated with registration.
Raising money publicly with a 506(c) offering? Investing in a private company through a public crowdfunding portal? Then verify the accredited investor status of an investor or yourself with the safest and most secure accredited investor verification around. Learn more at https://VerifyInvestor.com.
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