Pillsbury Winthrop Shaw Pittman

Looking forward: practical implications of the JOBS Act changes to private placements

By Robert B Robbins

Two key features of the JOBS Act — general solicitation in Rule 506 offerings and the increased thresholds at which an issuer will be required to register a class of securities under the Securities Exchange Act of 1934 — when combined with certain advantages already enjoyed by issuers in Rule 506 offerings will open up an entirely new category of ‘publicly offered private offerings’ that are largely exempt from substantive regulation at either the federal or state level, by issuers that will be able to avoid becoming public companies, for practical purposes, as long as they wish.

Given the high costs and liability risks of operating as a publicly reporting company in the US, and the great advantages of being a Rule 506 issuer, this is a category that could prove to be very large and very varied.

Rule 506 is the exemption used for more than 90 per cent of all exempt offerings in the US, and more than 90 per cent of all exempt offerings already are limited to accredited investors. Rule 506, as it had existed until the recent amendments, permitted private placements to be sold in unlimited offering amounts, to an unlimited number of purchasers (subject to the need for 1934 act registration when an issuer has 500 holders of record), so long as all of the purchasers are accredited investors and there was no use of general solicitation or public advertising…

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