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SEC Fast Answers – Rule 506

From the SEC’s “Fast Answers” Page:

Rule 506 of Regulation D

Rule 506 of Regulation D is considered a “safe harbor” for the private offering exemption ofSection 4(a)(2) of the Securities Act. Companies relying on the Rule 506 exemption can raise an unlimited amount of money. There are actually two distinct exemptions that fall under Rule 506.

Under Rule 506(b), a company can be assured it is within the Section 4(a)(2) exemption by satisfying the following standards:

Under Rule 506(c), a company can broadly solicit and generally advertise the offering, but still be deemed to be undertaking a private offering within Section 4(a)(2) if:

Purchasers of securities offered pursuant to Rule 506 receive “restricted” securities, meaning that the securities cannot be sold for at least a year without registering them.

Companies relying on the Rule 506 exemption do not have to register their offering of securities with the SEC, but they must file what is known as a “Form D” electronically with the SEC after they first sell their securities.

For more information about the private placement process, read SECLaw.com‘s Introduction to Private Placements, as well as the SEC’s Fast Answers for Rule 504, 505 and 506, and the SEC’s brochure, Small Business & the SEC.