Last Updated on May 17, 2017 by John Fischer
The topic under examination in this article is the difference between SEC Regulation D Rule 506(B), and Rule 506(C) in a private placement situation. That’s B for Bravo and C for Charlie.
It’s important to understand federal securities laws. A solid knowledge of the opportunities and limitations set forth by these laws makes a good impression on investors. If you’re hoping to secure ready capital from serious players then you should know the rules of the game; because, after all, the stakes are high, and you want your investors to have faith in your offering.
If you’ve got a startup business and you’re ready to take on the world, you need to stay sharp and make a good offering to the right people and in the right genre. Even if you’re a seasoned businessperson with years of experience you need to know what opportunities are available to you and how and where you can make your regulation D offerings. Your friends at the SEC have set out the rules in plain English. Abide by these; they will help you achieve your ultimate goal. Learn about Regulation D Rule 506. Wouldn’t it be great if you could secure capital for your venture without going through the vexing SEC registration processes that were set about during the great depression? Good news! You can. That’s what Regulation D offerings is all about. Reg D wants to set you free.
If you have a great product, service, idea, or if you’re trying to secure capital for virtually any kind of venture, you need to make a strong securities offering to investors. The problem is where and how and what kind of offering you can make under the guidelines set forth by the SEC. Traditionally, it would have been required of you to register your offering with SEC. However, even back in the old days, there were possible exemptions from this process under Regulation D offerings. It’s good to know this. If you qualify for exemptions under the established criteria then you can move forward with your business and avoid the aches and pains of obsessive filing and reports.
Back to the offering: you’ve got a great package and you’re ready to market your securities. Where can you advertise your offering? Here is where Bravo and Charlie come in. According to Rule 506(B) you can make your offering to any investor who is interested, even non-accredited investors. The caveat here is that you need to make sure the information concerning your offering is well-prepared and very organized. And you need to make sure this information is readily available to be scrutinized by your investors. Typically, your company will issue private placement memorandum, also known as a PPM. This document will inform your investors of the value of your securities and help you secure capital.
Rule 506(C) does not require you to write a PPM. Under 506(C) you can make your offering available in virtually any public sphere. You can advertise on the web, place attractive advertisements on television, or even solicit investors over the phone. The exception here is that you can only sell your securities to accredited investors. This is important. It is understood that your investors will know the market value of your securities and make a wise choice, but the responsibility is yours to make sure the investors are accredited. Due diligence is required here. How do you know if your investors are accredited?
A good way to make sure your leads are solid is to contact a reputable company to provide you with lists of accredited investors. Our lead lists are full to the brim with investors who read the markets carefully, know their options, and request information about a variety of opportunities. They’re interested in attractive offerings, and we’ve found them for you. Make the call.
(The information presented here is derived from documents freely available on-line at SEC.gov.)