At BlackHill, we have extensive experience advising clients on private securities offerings, including offerings made under Rules 506(b) and 506(c) of Regulation D under the Securities Act of 1933.
Rule 506(b) allows for the sale of an unlimited amount of securities to an unlimited number of accredited investors and up to 35 non-accredited investors. In order to rely on this exemption, the issuer must not use any general solicitation or advertising to market the securities.
Rule 506(c) allows for the sale of an unlimited amount of securities to an unlimited number of accredited investors, but requires the issuer to take reasonable steps to verify the accredited investor status of potential investors. This rule also allows for the use of general solicitation and advertising to market the securities.
In addition to Regulation D, we also advise clients on offerings made under other exemptions, such as Regulation S, which provides an exemption from the registration requirements of the Securities Act for certain offers and sales of securities that are made outside the United States, Regulation Crowdfunding and other state-specific exemptions.
Broker Dealer Issues
We also have experience advising clients ensuring they are not classified as a broker dealer unless they have the appropriate registrations and licenses. You cannot engage in broker dealer activity unless you are appropriately licensed, and issuers who hire unregistered broker dealers face additional risk and liability for hiring such unlicensed persons. We frequently assist in ensuring compensation structures and business arrangement and agreements do not run afoul of broker dealer regulation.
Exemptions Under the Investment Advisers Act
Our fund clients include registered investment advisers and those exempt from registration under the investment advisers act (such as exempt reporting advisers). Anyone who is in the business of providing investment advice for compensation needs to deal with the Investment Advisers Act (or state equivalent). Many advisers who solely advice private investment funds are exempt from registration but may still need to file truncated Form ADV as an “exempt reporting adviser.” We commonly assist with determining the regulatory requirements for fund managers and making all needed filings on behalf of our clients.
Exemptions Under the Investment Company Act
We also assist funds ensure compliance with exemptions from the Investment Company Act of 1940. For instance, an issuer may be able to rely on the exemption provided by Section 3(c)(1) of the Investment Company Act of 1940, which applies to issuers with fewer than 100 (or 250 for qualifying venture capital funds) holders of record of its securities. Additionally, an issuer may be able to rely on the exemption provided by Section 3(c)(7) of the Investment Company Act, which applies to issuers whose securities are only offered and sold to qualified purchasers. We also regularly advise on the nuances of the “integration” and “look-through” rules in the context of Section 3(c)(1).
If you are considering a private securities offering, our experienced attorneys can assist you in navigating the complex regulatory landscape and ensure compliance with all applicable laws and regulations. Contact us today to schedule a consultation.