Legal Question in Business Law in Massachusetts

SEC Regulation D Rule 504
My question is about the exemption that Rule 504 provides for raising capital and how it affects 'general solicitation'. I understand that you can't generally solicit, through media and advertising, the sale of securities. However, under Rule 504 is that allowed if you are raising no more than $1M in a one year span? Furthermore, as a startup are you allowed to solicit the general public and not just accredited investors? Example: if you wanted to raise $500k, could you raise $100 from 5,000 people by advertising to the general public?

I appreciate any advice.

Thanks.

Asked on 1/29/09, 10:21 pm

2 Answers from Attorneys

JOHN TATOIAN LAW OFFICE OF JOHN A. TATOIAN ESQ.*Licensed Only in Massachusetts

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Re: SEC Regulation D Rule 504

Pursuant to Rule 504 of Regulation D, an issuer is limited to raising up $1,000,000 in any 12 month period. Further, the issuer is generally not allowed to solicit or advertise their securities to the general public, nor is the issuer allowed to sell "transferable" securities ( subject to certain Rule exceptions). The issuer is allowed to offer the securities to an unlimited number of "accredited" investors and up to 35 non accredited investors. An "accredired" investor is defined under Rule 501 of Regulation D as a ;

>a bank, insurance company, registered investment company, business development company, or small business investment company;

>an employee benefit plan, within the meaning of the Employee Retirement Income Security Act, if a bank, insurance company, or registered investment adviser makes the investment decisions, or if the plan has total assets in excess of $5 million;

>a charitable organization, corporation or partnership with assets exceeding $5 million;

>a director, executive officer, or general partner of the company selling the securities;

>a business in which all the equity owners are accredited investors;

>a natural person with a net worth of at least $1 million;

>a natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year; or

>a trust with assets of at least $5 million, not formed to acquire the securities offered, and whose purchases are directed by a sophisticated person.

The securities laws are extremely complex and require the guidance of licensed counsel. Please feel free to contact my office for a free initial consult based upon the facts of your specific situation.;))

Answered on 1/30/09, 9:29 am

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