Private Placements 101
November 28, 2011 By Hamilton & Associates, P.A.
Regulation D, Rule 506 Offerings - To offer and sell securities in the United States, an issuer must comply with the registration requirements of the Securities Act of 1933, as amended (the "Securities Act"), or must offer and sell the securities pursuant to an exemption from the registration statement requirements.
A commonly used private offering exemption is Rule 506 of Regulation D. Rule 506 is a non-exclusive “safe harbor” for the statutory exemption provided by Section 4(2) of the Securities Act. The basic Rule 506 elements are:
Dollar Amount That May Be Sold
Rule 506 does not limit the amount of capital an issuer can raise.
Number of Shares Permitted
Rule 506 does not limit the number of shares that an issuer may offer or sell.
Manner of Offering
Rule 506 does requires that the offering be private. An issuer cannot use general solicitation or advertising to market the securities offered and must have a pre-existing relationship to any investor solicited.
Maximum Number of Investors
Rules 506 does not limit the number of accredited investors that an issuer may sell its securities to. Rule 506 does limit the number of offers and sales to non-accredited investors. The issuer may offer and sell its securities to as many as 35 non-accredited investors in a Rule 506 offering and must reasonably believe, that the non-accredited purchaser either alone or with their purchaser representative, is a sophisticated investor with sufficient knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of an investment in the issuer’s securities.
The Information Requirements
Application of the Anti-Fraud Provisions
Regardless of the type of information provided, the anti-fraud provisions apply to any information furnished to investors.
Opportunity to Ask Questions
An issuer must make available to each purchaser, at a reasonable time prior to purchase, the opportunity to ask questions and receive answers concerning the terms and conditions of the offering and to obtain any information that is necessary to verify the accuracy of the information furnished to the investor if the issuer possesses or can acquire such information without unreasonable effort or expense
Accredited Investors
An issuer is not required to furnish any specific information to accredited investors.
Non-Accredited Investors
Non-Reporting Issuers
If an issuer is not required to file periodic reports under the Securities Exchange Act of 1934 then it must furnish non-accredited investors with the same kind information as required by a Regulation A offering statement.
Reporting Issuers
If an issuer is required to file periodic reports under the Securities Exchange Act of 1934 then it must furnish non-accredited investors with the same kind information as required by a registration statement to be filed under the Securities Act.
Financial Statement Information
Offerings up to $2,000,000
The financial statements which include:
• Balance sheets as of the end of each of the two most recent fiscal years (or as of a date within 135 days if the issuer has existed for less than one year), however, only the balance sheet, dated within 120 days of the start date of the offering, must be audited;
• Statements of income, cash flow and changes in stockholders’ equity for each of the two years preceding the date of the most recent audited balance sheet (or such shorter period as the issuer has been in business); and
• Interim financial statements as of the end of the issuer's most recent fiscal quarter.
Offerings up to $7,500,000
The same financial statements required to be furnished in offerings up to $2,000,000 but the financial statements must be audited.
Offerings over $7,5000,000
The issuer must provide the financial statements required to be filed in a registration statement.
Form D Filing
An issuer must file a notice of sale on Form D with the Securities and Exchange Commission no later than 15 days after the first sale of securities in the offering.
This memorandum is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute, legal advice on any specific matter, nor does this message create an attorney-client relationship. Please note that the prior results discussed in the material do not guarantee similar outcomes.
ABOUT THE AUTHOR: Brenda Lee Hamilton, P.A.
Ms. Hamilton counsels clients in stock exchange listings involving the New York Stock Exchange, American Stock Exchange, NASDAQ and the OTC Markets. She also assists clients with obtaining dual and single listings on international exchanges such as the Frankfurt, TSX Venture Exchange , Toronto and London exchanges including compliance with regulatory requirements of the various Securities Commissions, including corporate governance matters, liaising with the various Securities Commissions, continuous disclosure and other filing requirements with the various Securities Commissions, prospectus preparation and filings (IPO and non-IPO), preparation and filing of stock exchange listing submissions , compliance with various stock exchange policies.
Copyright Hamilton & Associates, P.A.
More information about Hamilton & Associates, P.A.
Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.
Dollar Amount That May Be Sold
Rule 506 does not limit the amount of capital an issuer can raise.
Number of Shares Permitted
Rule 506 does not limit the number of shares that an issuer may offer or sell.
Manner of Offering
Rule 506 does requires that the offering be private. An issuer cannot use general solicitation or advertising to market the securities offered and must have a pre-existing relationship to any investor solicited.
Maximum Number of Investors
Rules 506 does not limit the number of accredited investors that an issuer may sell its securities to. Rule 506 does limit the number of offers and sales to non-accredited investors. The issuer may offer and sell its securities to as many as 35 non-accredited investors in a Rule 506 offering and must reasonably believe, that the non-accredited purchaser either alone or with their purchaser representative, is a sophisticated investor with sufficient knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of an investment in the issuer’s securities.
The Information Requirements
Application of the Anti-Fraud Provisions
Regardless of the type of information provided, the anti-fraud provisions apply to any information furnished to investors.
Opportunity to Ask Questions
An issuer must make available to each purchaser, at a reasonable time prior to purchase, the opportunity to ask questions and receive answers concerning the terms and conditions of the offering and to obtain any information that is necessary to verify the accuracy of the information furnished to the investor if the issuer possesses or can acquire such information without unreasonable effort or expense
Accredited Investors
An issuer is not required to furnish any specific information to accredited investors.
Non-Accredited Investors
Non-Reporting Issuers
If an issuer is not required to file periodic reports under the Securities Exchange Act of 1934 then it must furnish non-accredited investors with the same kind information as required by a Regulation A offering statement.
Reporting Issuers
If an issuer is required to file periodic reports under the Securities Exchange Act of 1934 then it must furnish non-accredited investors with the same kind information as required by a registration statement to be filed under the Securities Act.
Financial Statement Information
Offerings up to $2,000,000
The financial statements which include:
• Balance sheets as of the end of each of the two most recent fiscal years (or as of a date within 135 days if the issuer has existed for less than one year), however, only the balance sheet, dated within 120 days of the start date of the offering, must be audited;
• Statements of income, cash flow and changes in stockholders’ equity for each of the two years preceding the date of the most recent audited balance sheet (or such shorter period as the issuer has been in business); and
• Interim financial statements as of the end of the issuer's most recent fiscal quarter.
Offerings up to $7,500,000
The same financial statements required to be furnished in offerings up to $2,000,000 but the financial statements must be audited.
Offerings over $7,5000,000
The issuer must provide the financial statements required to be filed in a registration statement.
Form D Filing
An issuer must file a notice of sale on Form D with the Securities and Exchange Commission no later than 15 days after the first sale of securities in the offering.
This memorandum is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute, legal advice on any specific matter, nor does this message create an attorney-client relationship. Please note that the prior results discussed in the material do not guarantee similar outcomes.
ABOUT THE AUTHOR: Brenda Lee Hamilton, P.A.
Ms. Hamilton counsels clients in stock exchange listings involving the New York Stock Exchange, American Stock Exchange, NASDAQ and the OTC Markets. She also assists clients with obtaining dual and single listings on international exchanges such as the Frankfurt, TSX Venture Exchange , Toronto and London exchanges including compliance with regulatory requirements of the various Securities Commissions, including corporate governance matters, liaising with the various Securities Commissions, continuous disclosure and other filing requirements with the various Securities Commissions, prospectus preparation and filings (IPO and non-IPO), preparation and filing of stock exchange listing submissions , compliance with various stock exchange policies.
Copyright Hamilton & Associates, P.A.
More information about Hamilton & Associates, P.A.
View all articles published by Hamilton & Associates, P.A.
Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.
