Rule 506 General Solicitation and Startup Capital-Raising

Summary

This practice note provides a brief overview of the securities registration exemptions available under Rule 506 (17 C.F.R. § 230.506) of Regulation D of the Securities Act of 1933, as amended (Securities Act) and discusses in detail the factors an issuer should consider in determining whether its activities may constitute general solicitation and general advertising (referred to herein as general solicitation). Startups, small/medium-sized enterprises and other emerging companies have frequently relied on the exemptions available under Rule 506 for early-stage capital-raising. Offerings made pursuant to Rule 506 are particularly popular for startups because, unlike certain other exemptions from registration of securities under the Securities Act, they allow the issuer to raise an unlimited amount of capital and are not subject to any disclosure requirements so long as the offerings are limited to accredited investors.