Rule 506

Definition:

A rule under Regulation D that provides a non-exclusive Safe Harbor under Section 4(a)(2) of the Securities Act.

Prior to the July 2013 amendments under the JOBS Act, an issuer relying on Rule 506 could sell securities, without any limitation on the offering amount, to an unlimited number of Accredited Investors and to no more than 35 non-Accredited Investors who met certain requirements provided there was no General Solicitation or General Advertising. Under the July 2013 amendments, this existing framework is unchanged and redesignated as Rule 506(b).

The amendments under the JOBS Act provide for Rule 506(c) that allows issuers to offer securities through means of General Solicitation or General Advertising provided that all purchasers are Accredited Investors and the issuer takes reasonable steps to verify that the purchasers of the securities are Accredited Investors. With regard to the latter requirement, the SEC highlights that “this requirement is separate from and independent of the requirement that sales be limited to Accredited Investors, and must be satisfied even if all purchasers happen to be Accredited Investors.”

The JOBS Act amendments also revised Form D. An issuer relying on Rule 506 will now be required to check a box specifying which Rule 506 exemption, either Rule 506(b) or 506(c), they have relied on.

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