In my last post, I discussed new proposed Regulation D rules which impose new obligations upon issuers of securities in private placements. In that post, I expressed some concern that these new rules could be quite burdensome, especially the rule disqualifying issuers from using Rule 506 on future securities offerings for failing to file Form D in a timely fashion. Others involved with startup capital formation have also expressed similar concerns. In this post, I’ll compile the comments I’ve seen thus far. [Read more…]
On July 10, 2013, the same day it announced the adoption of rules permitting general solicitation under certain conditions and disqualifying “bad actors,” the Securities and Exchange Commission issued proposed new rules entitled “Amendments to Regulation D, Form D and Rule 156 under the Securities Act.” The proposal dramatically increases the Form D filing requirements for Rule 506 offerings and increases the consequences for failing to file Form D or filing Form D late.
Previously, I summarized the Securities and Exchange Commission’s implementing regulations of Title II of the JOBS Act, lifting the ban on general solicitation for offerings exempt under Rule 506 of Regulation D, which were finalized on July 10, 2013. At the same meeting, the SEC also finalized regulations which implement Section 926 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which requires the SEC to exclude certain felons and other “bad actors” from reliance on Rule 506.
Release No. 33-9414, entitled “Disqualification of Felons and Other ‘Bad Actors’ from Rule 506 Offerings,” is the final version of the rule and can be found here. “Bad actor” (or “bad boy”) disqualification provisions disqualify securities offerings from reliance on an exemption from registration if the issuer or other key persons (such as underwriters, placement agents, or directors, officers, or significant shareholders of the issuer) have been convicted of, or are subject to court or administrative sanctions for, securities fraud or other violations of specified laws. While such provisions can be found elsewhere in federal and state securities regulations, Rule 506 did not previously include any. [Read more…]
On July 10, 2013, the Securities and Exchange Commission finally issued its regulations lifting the ban on general solicitation pursuant to Title II of the Jumpstart Our Business Startups Act (“JOBS Act”). The lifting of the ban will take effect in about 60 days from now.
Release No. 33-9415, entitled “Eliminating the Prohibition Against General Solicitation and General Advertising in Rule 506 and Rule 144A Offerings,” is the final rule adopting amendments to Rule 506 and Rule 144A pursuant to Title II of the JOBS Act. The amendment to Rule 506 permits an issuer to engage in general solicitation or general advertising in offering and selling securities in reliance on the exemption in Rule 506 as long as all purchasers are accredited investors and the issuer takes reasonable steps to verify that status. Form D will be revised to require an issuer to check a box to indicate whether it is relying on the provision that permits general solicitation or general advertising in a Rule 506 offering (which will now be called Rule 506(c)) or the issuer is relying on the traditional Rule 506 exemption which still prohibits general solicitation (now called Rule 506(b)). The amendment to Rule 144A provides that securities may be offered pursuant to Rule 144A to persons other than qualified institutional buyers as long as the securities are sold only to persons that the seller reasonably believes are qualified institutional buyers. The text of the release, which includes the final rule, can be found here. [Read more…]
This post is the seventh and final in a series examining the impact of the Jumpstart Our Business Startups Act (or JOBS Act) one year after its passage and focuses on Titles V and VI of the law and provides some final concluding thoughts.
Titles V and VI of the JOBS Act are closely related in that they both pertain to when private companies must register their securities under the Securities Exchange Act of 1934. Typically, after a startup has gone through multiple rounds of financing and has provided equity compensation to a large number of employees, it finds itself in a position where the number of shareholders it has triggers the requirement to register its securities and begin periodic public reporting of material information, in effect making it a public company. But this transition is not always desired by the company’s management or controlling shareholders. [Read more…]