Tilden Moschetti, an attorney for the Moschetti Syndication Law Group, discusses the question of whether a syndicator can do both a Rule 506b offering (to include non-accredited investors) and a Rule 506c offering (for advertising purposes) at the same time. The answer is complex and depends on the specifics of the strategies used.
In general, Rule 506b allows up to 35 non-accredited investors in your syndication over a 90-day period but prohibits general solicitation. In contrast, Rule 506c permits general solicitation, even to unknown investors.
Syndicators often wish to combine both rules to attract as much capital as possible from both non-accredited investors they know and the general public. However, Moschetti explains that this approach has several pitfalls.
First, executing a Rule 506b and Rule 506c offering simultaneously is not allowed, as it would evade the prohibition on general solicitation.
Second, performing a Rule 506c offering, closing it, and then initiating a Rule 506 B offering is also non-compliant, as it similarly circumvents the rules.
The third strategy Moschetti proposes involves starting with a Rule 506b offering, taking no action to advertise, and bringing in only those individuals with whom the syndicator has a personal relationship. Once the Rule 506b offering is closed, the syndicator could initiate a Rule 506c offering, allowing them to advertise to the general public. This approach might be acceptable if well-documented, but any non-accredited investor entering the 506c offering would violate the rules, collapsing the entire arrangement.
If you are ready to schedule a free consultation with an attorney for your syndication, go to https://www.moschettilaw.com/schedule-a-consultation/.
Read more about Reg D Rule 506b - Rule 506b of Reg D: Non-Accredited Investors & No Solicitation: https://www.moschettilaw.com/rule-506b-of-reg-d/
Read more about Reg D Rule 506c - Rule 506c of Reg D – Solicitation & No Non-Accredited Investors: https://www.moschettilaw.com/rule-506c-of-reg-d/
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