 With
a Rule 506 Letter Offering to Accredited Investors (anyone with
a net worth exceeding $1 million (including spouse) or an annual
income of $200,000 ($300,000 including spouse) during each of the
past two years and expectations of same for ensuing year), there
are no specific disclosure requirements. That means you can offer
securities for sale quickly and cost effectively! There is no need
for audited financials or a formal private placement memorandum.
Rule 506 offerings are exempt from state qualification requirements
(except for a notice filing and fee required in certain states).
Companies, do however, have to provide investors with certain documentation
in order to limit their (and officers and directors) liability
and file a Form D with the Securities and Exchange Commission (SEC")
within 15 days after the first sale of securities. Also, some states
are pre-filing states, that is, you must file a notice and any
prerequisite fees prior to any offer or sale of securities.
Other
Advantages
A Rule 506 offering to Accredited Investors provides the following additional
benefits:
- Provides
a structured (and limited liability) framework for brokerage
firms to market and sell your company's securities;
- Allows
companies to market their securities offering through various "Angel" networks;
- Allows
unlimited number of investors to participate in your company's
offering (99% of private companies raise capital by pooling
numerous small investors. Only 1% of capital is raised by using
venture capital); and
- Solves
legal issues by providing investor disclosure and providing
an information vehicle necessary ( the details of the "deal")
for an investor to make an investment decision.
- A Letter
Offering is Quick. It allows your company to offer securities
in 15 business days or less instead of months required for
a regular private placement offering.
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