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Title II, Rule 506(c) and a More Efficient Marketplace

Mihir Gandhi

Imagine trying to sell your car, but rules prevent you from placing an online ad, putting a sign in the window, or otherwise spreading the word to potential buyers. You'd have a tough time finding a buyer, which would slow down your plan to buy that brand new model. Into that bottleneck, add all the other Americans who are also hampered in their desire to upgrade their vehicles. New vehicle sales would stagnate, leading to excess inventory. Car manufacturers would slow production and lay off workers. Not a recipe for a healthy motor vehicle sector, and a drag on the overall economy.

Title II of JOBS Act

That was essentially the state of play in the world of private placements prior to Title II of the Jumpstart Our Business Startups (JOBS) Act. The dampening veil of old rules that prevented private placement issuers from selling securities through advertising has been lifted by Rule 506(c), eliminating the prohibition against general solicitation and allowing virtually any company to raise capital via initiatives such as crowdfunding, online advertising, and even tv/radio spots.

Advertise to All, But Verify Accreditation

There's no longer a requirement for a pre-existing relationship between issuer and investor with the implementation of Title II. However, issuers must verify that the investors who actually purchase the securities are accredited. Investors must be able to prove their accreditation status in order to participate in the private placement.

Market Efficiencies

There are advantages for both the investor and issuer with Rule 506(c) of Title II. Advertising provides access to broader audiences and an entire new group of potential investors, enabling issuers to raise more capital more quickly. Investors no longer need to rely on middle-men to sort and filter deals: they can do their own research and identify opportunities that meet their preferences and needs. Due diligence documents are increasingly available online, increasing transparency and efficiency. Transparency leads to fairness, and efficiency leads to a reduction in the cost of raising capital, which makes it easier for these companies to create jobs.

After all, Title II was known as the Access to Capital for Job Creators Act when it was introduced as part of the JOBS Act package in 2012. Suddenly it is becoming much easier for everyone and anyone to upgrade to that shiny, new motor vehicle.

To verify the accredited status of your investors, look no further than the confidential, safe and secure services of