Can I Sell Company’s Shares Under Regulation D Rule 506(b) Without SEC Registration?

Question from Bociys31, Can I Sell Company’s Shares Under Regulation D Rule 506(b) Without SEC Registration?

Answer from AI:

Yes, you can sell a company’s shares under Regulation D Rule 506(b) without registering with the SEC, but there are specific conditions and limitations you must follow. Regulation D Rule 506(b) is a popular exemption from SEC registration requirements, allowing companies to raise capital without the need for a public offering. However, it’s crucial to understand the rules and restrictions associated with this exemption.

Key Conditions of Rule 506(b)

To qualify for the Rule 506(b) exemption, you must adhere to the following conditions:

• Accredited Investors: You can sell shares to an unlimited number of accredited investors. Accredited investors are individuals or entities that meet certain financial criteria, such as having a net worth exceeding $1 million (excluding the value of their primary residence) or an annual income of over $200,000 ($300,000 for joint income) in the last two years.
• Non-Accredited Investors: You can sell shares to up to 35 non-accredited investors, but they must have sufficient knowledge and experience in financial and business matters to evaluate the investment’s merits and risks.
• No General Solicitation: You cannot use general solicitation or advertising to market the securities. This means you cannot publicly advertise the offering through media, social networks, or other public forums.
• Disclosure Requirements: If you include non-accredited investors, you must provide them with disclosure documents similar to those used in registered offerings. This includes financial statements and other relevant information about the company.

Steps to Comply with Rule 506(b)

To ensure compliance with Rule 506(b), follow these steps:

1. Identify Investors: Determine whether your potential investors are accredited or non-accredited. This will help you understand the disclosure requirements and limitations on the number of non-accredited investors.
2. Prepare Offering Documents: Create detailed offering documents, including a private placement memorandum (PPM), subscription agreement, and investor questionnaire. These documents should provide comprehensive information about the company, the offering, and the risks involved.
3. File Form D: Within 15 days of the first sale of securities, file Form D with the SEC. This form provides basic information about the offering and the company.
4. Maintain Records: Keep detailed records of all communications with investors, including how you verified their accredited status and any disclosures provided.

When to Seek Legal Advice

While this overview provides a general understanding of Rule 506(b), it’s essential to consult with a legal professional to ensure full compliance with securities laws. A securities attorney can help you:

• Verify investor accreditation status
• Prepare and review offering documents
• Navigate state-specific securities regulations (Blue Sky laws)
• Address any legal issues that arise during the offering process

Additional Resources

For more detailed information, you can refer to the following resources:

• SEC’s Rule 506 of Regulation D
• SEC’s Guide on Rule 506(b)

Remember, while Rule 506(b) offers a streamlined way to raise capital, ensuring compliance with all legal requirements is crucial to avoid potential penalties and legal issues. Always consider consulting with a legal professional for personalized advice tailored to your specific situation.