The Jumpstart Our Business Startups Act (JOBS Act) of April 2012 is aimed at making it easier for businesses to raise funds. This game-changing piece of legislation has abolished the regulations that previously made it impossible for companies to publicly solicit investment without going through an expensive SEC registration process that most of them simply couldn’t afford. Now they have an affordable way to use public channels, such as social media and advertising, among others, to raise capital. The main stipulation is that they must only accept investments from accredited investors that they have verified as accredited.
The exemption from the securities laws that make this possible are found in the new Rule 506(c) of Regulation D of the Securities act which was implemented on September 23, 2014 as required by the JOBS Act.
Stipulations of Rule 506(c)
The main provision is that all businesses conducting general solicitation capital raises under Rule 506(c) have to ensure that all actual investors are accredited investors.
An accredited investor can fall into various categories:
1. They can be natural persons, for example an individual who has earned a minimum of $200 000 in each of the previous two years, and who has reasonable expectations of earning a similar amount in the current year. This amount is increased to $300 000 if declared as joint income with a spouse. It can also be an individual person that, individually or with a spouse, has a net worth of over $1 million (excluding his or her primary residence).
2. They can also be entities, for example, a business, partnership, bank, corporation, non-profit organization or trust – which has in the region of $5 million in assets.
3. For a more thorough list of accredited investors, visit https://www.sec.gov/answers/accred.htm
Benefits of Rule 506(c) to Businesses
Rule 506(c) is one of the greatest developments in United States securities law and the capital markets in decades. Prior to the implementation of Rule 506(c), businesses had difficulty finding investors. Being able to generally solicit under the newly enacted Rule 506(c) allows these same companies to locate investors by advertisement, social media or other forms of general solicitation. It gives them a better chance to successfully raise capital and grow. The burden of having to verify that an investor is truly an accredited investor is a small price to pay in exchange for the ability to secure financing more quickly and easily.
Verification is fast, easy, and affordable.
Visit https://VerifyInvestor.com to find out how you can verify a potential investor, or obtain verification for yourself, your business or organization.
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