Questions Over General Solicitation Rules

General Solicitation QuestionsFolks have a lot of questions about the SEC rules regarding general solicitation that go into effect on September 23rd. (Check out the SEC Rules).

On September 23rd, it will become legal for corporations to generally solicit their Reg D Rule 506(c) securities offerings, provided:

  1. They accept only accredited investors.
  2. They take reasonable steps to verify the accredited investor status of their investors.
  3. They check a box on their Form D indicating that they generally solicited.

The fact that the SEC issued proposed rules on the same date that it issued the final rules on general solicitation has caused a lot of confusion. Especially because the proposed rules would put a whole bunch of additional requirements on generally solicited offerings in addition to the three above.

But on September 23rd, the additional requirements contemplated by the proposed rules will not be in effect. The rules that go into effect on September 23rd allow general solicitation provided you meet the above three listed requirements.

I received the following question the other day.

    Q: Do I have to file anything prior to September 23rd if I want to generally solicit on September 23rd?
    The answer is no. There is no requirement in the rules that go into effect on September 23rd to file anything in advance of generally soliciting.  The current rules, which will remain in effect after September, require a Form D to be filed within 15 days of the first sale of securities.

In the final rules on general solicitation, the SEC summarizes the filing requirement as follows:

“Under Rule 503 of Regulation D, an issuer offering or selling securities in reliance on Rule 504, 505 or 506 must file a notice of sales on Form D with the Commission for each new offering of securities no later than 15 calendar days after the first sale of securities in the offering.” (Emphasis mine.)

See here: www.sec.gov/rules/final/2013/33-9415.pdf

It is true that the proposed rules contemplate an Advance Form D filing. But the proposed rules are just that, proposed. The comment period on those rules ends on September 23rd. I encourage you to comment.

So, given that there is no filing in advance required before you generally solicit, is there anything in particular you should do before going ahead?

Yes. I would encourage you to carefully consult with counsel about the pros and cons of generally soliciting.

I wrote about some of the pros and cons on my article, What You Should Do Before Generally Soliciting.

About Joe Wallin

Joe Wallin focuses on emerging, high growth, and startup companies. Joe frequently represents companies in angel and venture financings, mergers and acquisitions, and other significant business transactions. Joe also represents investors in U.S. businesses, and provides general counsel services for companies from startup to post-public.
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