Rule 506B Of Regulation D
In general, in order to publicly sell stocks or other securities to investors, corporations must file a lengthy detailed disclosure about business operations with the security and exchange commission. This can cause significant hassle and stress during a fund raise.
Fortunately, Regulation D of the Securities Act provides a number of exemptions from general registration and disclosure requirements.
Many companies follow the requirements of rule 506(b) of Regulation D border to sell their securities. Companies doing a 506(b) offering may raise as much money as they want and may seek their securities to as many buyers as they wish.
In order to claim a Rule 506(b) exemption, a company cannot generally solicit or advertise the securities and they cannot sell securities to more than 35 non accredited investors.
If any non accredited investors will participate in those offerings, the company must give those investors the same information as if it was a registered offering and they must answer those investors’ questions about the company.
Assuming a company meets a requirement of 506(b), it does not have to register securities with the Securities and Exchange Commission. The company just has to file a notice of exemption with the Securities and Exchange commission within 15 days from the date of its first sale.
If 506(b) exemption also preempts state law requirements with regard to security sales except for required notice of filing reports and associated fees. Rule 506 (b) provides very powerful exemptions to security regulations that many companies may want to consider or their sale securities.
As always, if you have questions or you need help with the sale, please feel free to reach out to the attorneys of Fourscore Business Law.