Well, we all do need friends and family, but if you are starting or expanding a business, you now don’t need to rely on them as sources of funds for your business ventures, thanks to the SEC finally adopting new regulations called for by the JOBS Act. The regulations were due last year, but were just announced on July 10, 2013.

Previously, if you were using a private placement to raise funds to finance a new start-up company, or to expand an existing small company by selling equity or debt securities, you were forbidden from engaging in a general solicitation or advertisement of the offering. As a result, you could only solicit funds from folks with whom you had a pre-existing relationship, and that is how friends and family became the prime target for raising the required funds. If you were lucky, you might find a broker/dealer to work his or her list of clients, but again, it had to be done without general solicitation or advertising.

Under the new rules, set to go into effect in about 60 days, you will now be entitled to use general solicitation and advertising for your private placement fund raising efforts, if you are conducting a Regulation D private placement and relying on new Rule 506(c). The most critical element of the new rule is that you may sell the securities you are offering only to accredited investors. While this limitation may eliminate some of your family and friends as potential investors, because an accredited investor must meet certain income or net worth standards, it will mean that you are now permitted to advertise your offering on a web site, in newspapers and magazines, or on television and radio. This is expected to expose private placement offerings to a wide range of potential new investors, including companies and individuals to whom you might previously never had access. In addition, if you comply with the Regulation D offering rules, your offering will be exempt from state regulation.

Any general solicitation or advertisement of an offering must be done with care. It should be done with the guidance of counsel. The offering, along with the general solicitation and advertisement of it, will remain subject to the general anti-fraud rules under both federal and state securities laws. For a more detailed discussion of new Rule 506(c), please see our Corporate Department Client Alert.