The JOBS Act: What to Expect from the Not-So-Private Private Placement Regulations

One of the most significant provisions of the Jumpstart Our Business Startups Act (the “JOBS Act”), which was signed into law by President Obama on April 5, 2012, is the removal of the prohibition on general solicitation and advertising for securities offerings made pursuant to Rule 506 of Regulation D under the Securities Act of 1933 (“Rule 506 Offerings”) – so long as sales are made only to accredited investors.

This loosening of the most fundamental restriction on Rule 506 Offerings, which effectively takes the “private” out of “private placement”, is expected by many to have a much greater impact on small business capital formation than the headline-grabbing crowdfunding provisions of the JOBS Act. This is because the crowdfunding provisions only allow for relatively small offerings and impose a fairly complex and potentially burdensome regulatory scheme. The elimination of advertising prohibitions for Rule 506 Offerings, on the other hand, is a simple change with immediate impact because it will allow for Rule 506 Offerings to be broadcast to an unlimited number of investors for an unlimited amount of money so long as sales are made only to accredited investors.

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