Can Someone Not Registered with the SEC Sell Company Shares Under Regulation D Rule 506(b)?

Question from Boca2, Can Someone Not Registered with the SEC Sell Company Shares Under Regulation D Rule 506(b)?

Answer from AI:

Yes, it is possible for someone who is not registered with the Securities and Exchange Commission (SEC) to sell company shares under Regulation D Rule 506(b). However, there are specific conditions and requirements that must be met to comply with this exemption from registration.

Understanding Regulation D Rule 506(b)

Regulation D Rule 506(b) is a provision under the Securities Act of 1933 that allows companies to raise capital through the sale of securities without having to register with the SEC. This rule is designed to facilitate capital formation while providing certain protections to investors.

Key Requirements of Rule 506(b)

To qualify for the exemption under Rule 506(b), the following conditions must be met:

• Accredited Investors: The offering can be made 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 having an annual income of over $200,000 (or $300,000 together with a spouse) in the last two years.
• Non-Accredited Investors: The offering can include up to 35 non-accredited investors, but these investors must have sufficient knowledge and experience in financial and business matters to evaluate the merits and risks of the investment.
• No General Solicitation: The company cannot use general solicitation or advertising to market the securities. This means that the company must have a pre-existing relationship with the investors or use other methods to ensure that the offering is not publicly advertised.
• Disclosure Requirements: While there are no specific disclosure requirements for accredited investors, companies must provide non-accredited investors with disclosure documents that are generally similar to those used in registered offerings. This includes financial statements and other relevant information about the company.

Filing Requirements

Even though the offering is exempt from registration, the company must still file a Form D with the SEC within 15 days after the first sale of securities. This form provides basic information about the company and the offering.

When to Seek Legal Advice

Given the complexity of securities laws and the potential for significant penalties for non-compliance, it is highly recommended that companies and individuals consult with a legal professional before proceeding with an offering under Rule 506(b). A securities attorney can help ensure that all regulatory requirements are met and that the offering is structured in a way that minimizes legal risks.

Additional Resources

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

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

Remember, while this information provides a general overview, it is not a substitute for professional legal advice. Always consult with a qualified attorney to address your specific situation.