Regulation A+ Compared to Rule 506
Regulation 506 is the most popular capital-raising exemption. Rule 506 provides two distinctly different approaches:
Traditional private placements, in which general solicitation is prohibited and which can include up to 35 non-accredited investors and an unlimited number of accredited investors (Rule 506(b))
Offerings which allow general solicitation but in which only accredited investors can be purchasers (Rule 506(c))
There are a number of factors that should be considered when comparing the possibility of a Regulation A+ offering and a private offering under Rule 506.
The advantages of Regulation A+ in relation to Rule 506 are as follows:
Regulation A+ securities are not “restricted securities.” Securities purchased in a Rule 506 offering are restricted securities, and not freely The potential for a trading market actually developing for a Regulation A+ security should also be considered.
Regulation A+ securities can be offered to the general General solicitation is permitted under Rule 506(c), but sales pursuant to Rule 506(c) can only be made to accredited investors and the issuer needs to take reasonable steps to verify the status of purchasers as accredited investors. Other Rule 506 offerings are subject to limitations on the manner in which the offering can be made.
Issuers are not required to use reasonable methods to verify accredited investor status for purposes of the investment limitation in Tier 2 Regulation A+ offerings. Unlike Rule 506(c), issuers in a Regulation A+ offering can rely on purchaser self- certification unless the issuer knows that the purchaser’s self-certification is wrong.
There is no limit to the number of non-accredited investors in a Regulation A+ offering. Non-accredited investors are not permitted in Rule 506(c) In traditional private placements (Rule 506(b) offerings), only 35 non-accredited investors can be purchasers.