Am I Disqualified From Using Rule 506 If I Miss a Form D Deadline?

disqualifiedI was asked this question today:

“If I filed a Form D late a couple of years ago, and the proposed rules go into effect as written, they provide a 5 year look back. Does that mean I will suffer a 1 year disqualification on using Rule 506 immediately upon the effectiveness of the proposed rules?”

The proposed rules provide as follows:

(b)(1) No exemption under § 230.506 shall be available for an issuer if such issuer, or any of its predecessors or affiliates, has, within the five preceding years, failed to comply with the requirements of § 230.503 in connection with an offering conducted in reliance on § 230.506, except that such exemption shall be available for offers and sales in connection with offerings that commenced before the failure to comply occurred. In determining compliance with § 230.503 for purposes of this paragraph (b)(1), a notice on Form D (§ 239.500) or amendment thereto will be deemed timely if it is filed not later than 30 calendar days after the date specified for such filing in § 230.503, unless the issuer previously failed to comply with such a filing deadline in connection with the same offering.

But the proposed rules go on to say:

(3) For purposes of paragraph (b)(1) of this section, failures to comply with § 230.503 that occurred before [effective date of final rule] shall be disregarded.

This means that if you have missed a Form D deadline in the last 5 years, you won’t automatically be disqualified from using Rule 506 on your next financing when the rules become effective, if they become effective in their current form.

SEC Rules

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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