Fenwick and West Alert – SEC Clears Way for General Solicitation in Private Securities Offerings

New regulations approved by the Securities and Exchange Commission (SEC) in July 2013 give companies greater freedom to communicate with potential investors in certain private securities offerings, creating both new opportunities and additional risks. The regulations affect private and public companies, as well as pooled investment funds (such as venture capital, private equity, and hedge funds) seeking to raise money through offerings under Rule 506 or Rule 144A of the Securities Act.

Under current federal securities laws, companies seeking to raise capital through the sale of securities must either register the securities offering with the SEC or rely on an exemption from registration. Two of the most widely-used exemptions from registration are Rule 506 and Rule 144A.

The new rules allowing general solicitation represent a significant change in how private securities offerings can be conducted, and open up new opportunities for companies seeking to raise capital. The new rules are intended to make it easier and less costly for companies to identify potential investors and raise funds, and could be particularly useful for capital-efficient businesses that can be sustainably funded with angel investment, or for companies operating in sectors where traditional sources of venture capital and other investment have become scarce. On the other hand, the new rules also impose additional requirements, and companies seeking to rely on the new rules will need to use care to ensure compliance.

The new rules represent a significant change in how private securities offerings can be conducted, presenting new risks and opening up new opportunities for companies seeking to raise capital. The new rules have yet to become effective, and it will be some time before market practices evolve and the full impact of the rules can be assessed.

PDF Document: http://www.fenwick.com/FenwickDocuments/Corporate_and_Securities_Alert-SEC_Clears_Way_for_General_Solicitation.pdf

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SOURCE: Fenwick.com