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Saturday, March 29, 2014
A flow-chart to make the 506 investment rules easier to understand
There's a been a lot of confusion in the startup community about the changes in securities laws commonly referred to as "Rule 506". Basically, on September 23, 2013, the United States SEC issued new rules governing the public disclosure rules under which private companies can raise money from investors. There's been a lot written about those rules but I haven't found any simple guidelines that are comprehensible at a glance. Therefore, I developed the following flow-chart. Note that of course I'm not an attorney and you should definitely consult one if you plan on raising equity funds for your startup. A large majority of high growth potential startups will be raising funds under 506 and the following should give you some working knowledge as to the issues to consider. Comments and corrections welcome!