Representative Kevin McCarthy (R-CA and House Majority Whip) recently introduced the Access to Capital for Job Creators Act (H.R. 2940), which would remove the ban on general solicitation for securities offering conducted under Rule 506 of Regulation D. Rule 506 is a safe harbor regulation which sets forth some conditions that if met, will assure an issuer that its securities offering is exempt from registration under Section 4(2) of the Securities Act of 1933. The rule permits the sale of securities to up to 35 non-accredited but sophisticated investors and an unlimited number of accredited investors. However, the issuer must also avoid engaging in a “general solicitation,” which prohibits the issuer from conducting any public advertising of the offering. Rep. McCarthy’s bill would remove this prohibition on any offering conducted exclusively to accredited investors. [Read more…]
Private Offering Archives
Should you ask potential investors to sign an NDA?
I am frequently asked by entrepreneurs whether I think a startup should ask potential investors to sign a non-disclosure agreement (NDA). While the answer depends largely on the situation, my view is that in most cases an NDA is unnecessary if the only information being conveyed to potential investors is their company’s general business plan or overall market strategy. [Read more…]
Is action forthcoming on a crowdfunding exemption to Federal securities laws?
Previously, I highlighted a proposed Startup Exemption to Federal securities laws, which would allow small companies to “crowdfund” (i.e. raise small amounts of money as startup capital from a large number of participants over the internet). At the time, I thought that it was highly unlikely that anything significant would come of it. In today’s climate, where investment losses from 2008 are still fresh in the minds of policymakers, I thought it was unlikely that there would be any significant support for the loosening of financial regulations. I might have been wrong. [Read more…]
Private Placements: What happens if you fail to file Form D (or file it late)?
Form D is a document that the SEC requires a company to file when it issues securities in a private placement under Regulation D. It must be filed with the SEC within 15 days of the first sale of a security in a private placement. In addition, for offerings made under Rule 506 (the most frequently used part of Regulation D), an issuer must also file a copy of Form D (along with a filing fee) with the securities administrator of each state in which purchasers of the securities reside within 15 days of the first sale within each state. Overall, Form D is a relatively simple document to complete and file; however, it’s very easy for a small company to overlook filing one, especially if it doesn’t use qualified legal counsel for its securities offering. I frequently get asked about what happens when an issuer fails to file Form D or if the issuer files it late. This post describes what consequences can and cannot occur. [Read more…]
Could a proposed crowd funding securities exemption ever catch on?
Recently, I came across an online petition proposing a new “Startup Exemption” to federal securities registration requirements. You can find the petition at this website: www.startupexemption.com. Like many other similar proposals, its goal is to ease the regulatory burden on small businesses trying to raise capital. Some of the highlights of the proposed exemption are: [Read more…]