A TALE OF THREE EXEMPTIONS

Three ExemptionsThe law of private company fund raising is getting more complex and varied by the day.  The SEC has now issued its draft Title III crowdfunding rules…all 568 pages of them.

I have put together the below table to help you compare Rule 506(b) offerings to Rule 506(c) offerings to crowdfunding offerings under Title III of the JOBS Act.  Crowdfunding offerings are not yet available.  The rules are now out in draft form which is helpful, but it is unclear when they will become final.  In all cases you should consult with an attorney before engaging in a private company securities offering.

                           Least Expensive—————————————–> Most Expensive

 

Rule 506(b)

Rule 506(c)

Crowdfunding

Limitation on Offering Size

None

None

$1M during any 12 month period (not including amounts raised in a Rule 506 offering in the same period).[1]

Limitation on number of investors

None, but only 35 non-accredited investors are allowed (and then only if IPO level disclosure is provided).

All investors must be accredited.  Otherwise, none.

Not technically, but the aggregate fundraising cap indirectly works as one.

Advertising allowed

No.  No general solicitation or general advertising allowed.

Yes.  But beware!

General solicitor and general advertising give rise to more company and investor obligations.

Limitations on advertising.  See page 107 of the proposed regulations.

Specific Disclosure Requirements

No specific disclosure requirements, unless non-accrediteds are in the deal (and if they are, then IPO level disclosure is required).

No specific disclosure requirements required by the rules.

Yes, very specific, detailed disclosure requirements.

Third party intermediary required

No

No

Yes; companies have to go through a broker-dealer or registered funding portal.  This is required by the text of the JOBS Act itself.

Ongoing SEC reporting

No, but multiple Forms D and amendments may have to be filed.

No, but multiple Forms D and amendments may have to be filed.

Annual filing required via Edgar.  Issuers must also post the annual report on their websites.

[1] This is a silver lining found in the SEC’s proposed crowdfunding rules.  See pages 14-20 of the proposed crowdfunding 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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