Rule 506: Offerings with no dollar limit

Under SEC Rule 506; an issuer may issue an unlimited amount of securities, with no dollar limit, to no more than 35 on-accredited investors plus any number of “accredited investors.” There are required disclosures, if a sale of securities includes purchasers who are not accredited investors. All non-accredited investors must be sophisticated and must sign an Investor Questionnaire acknowledging same. Advertising and a general solicitation are prohibited. The securities are “restricted securities” which may not be readily resold.

There is a major advantage to 506, in that it supersedes and pre-empts the securities laws of all the states. This saves a lot of time, effort, and expense if the issuer is obtaining money from investors in multiple states. Form D must be filed with the SEC within 15 days after the first sale of securities and also with the secretary of state of each state in which a purchaser is a resident.