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SEC Begins Loosening Solicitation and General Advertising Following JOBS Act
On Wednesday, July 10, 2013, the Securities and Exchange Commission lifted the 80-year ban on general solicitation and general advertising following promises of the Jumpstart Our Business Startups (JOBS) Act.
The removal of the ban will aid small businesses including startup businesses in raising capital and private investment. The new rules will take another four months to come into effect in the ordinary course of events (two months to publish in the Federal Register, 60 days after publication before coming into effect).
However, the removal of the ban on general solicitation and advertisement in issuing offers or in efforts to raise funds does not come without checks and balances, and the SEC has proposed new rules accompanying lifting of the ban, that may well make accessing the exemption quite tough.
Being aware of the situation, the SEC has allowed businesses to follow the current rules in existence as an option, if they do not want to avail of the new, easy system for startups to raise funds.
Issuers who wish to take advantage of the new exemptions will have to take “reasonable steps” to verify whether the investors qualify as accredited investors. Copy of the general solicitation and other reasonable particulars would need to be filed with the SEC.
While allowing the exemptions under the new Rule 506(c) the SEC has also proposed new companion rules to ensure control. The proposal of new companion rules include stipulations that issuers would need to file Form D, at least 15 days in advance and also at the conclusion of a generally solicited offering. Issuers would also have to provide additional details in Form D, like accredited investor verification methods, and issuers who fail to file a Form D would be disqualified from being able to avail of the exemption.