Will My Securities Offerings Be Integrated? (2024)

Securities Lawyer 101 Blog

Issuers should consider the impact of offering integration when raising funds in Regulation D, Rule 506 offerings. The Securities & Exchange Commission‘s integration rules addresses the circ*mstances under which an issuer can raise capital privately while a Form S-1 registration statement is pending for a public offering. The integration rule was created toprevent companiesfrom improperly avoiding registration by dividing a single securities offering into multiple offerings to take advantage of Securities Act exemptions that would not be available for the combined offering.

A pending registration statement does not prevent an issuer from raising funds in a concurrent private offering if certain conditions are met.

The SEC’s position is that the filing of aregistration statementis a general solicitation of investors including in a going public transaction where an issuer uses aForm S-1. The SEC’s position on integration has created some confusion for issuers who conduct a concurrent private offering while there is a registration statement pending with the SEC since Rule 506(c) under the JOBS Act became effective,the absence of general solicitation and advertising was a fundamental condition to an unregistered offering.

The SEC addressed integration of concurrent public and private offerings in a Compliance and Disclosure Interpretation providing guidance concerning its 2007 release addressing integration.

The Compliance and Disclosure Interpretation provides useful guidancein determiningwhether a private offering will beexempt from registration under the Securities Act while a registration statement is pending.

Under limited circ*mstances, issuers can conduct a private offering underRule 506while a registration statement is pending. The issuermust identify the Rule 506 investorsby means other thanitsForm S-1registration statement.

Whether a particular securities offering is integrated with another offeringrequires an analysis of the facts and circ*mstances of the particular offerings. The focus is on how the Rule 506 investors are solicited – whether by the registration statement or through some other methods.

Issuers should determine if anoffering is exempt under Section 4(2) of the Securities Act without independent of the registration statement. The SEC’s release provided useful guidance for common scenarios in going public transactions.

Ifa company files a registration statement onForm S-1and then offers and sells securities in a Rule 506 offering to an investor that invests because of the registration statement, then the registration statement wasa general solicitation and the Section 4(2) exemption would not be available for the issuer’s private offering. Conversely, if the investor invested in the concurrentRule 506 offering because of some means other than theForm S-1registration statement such as through a substantive, pre-existing relationship with the company or direct contact by the company outside of the registration statement process thenthe pending registration statement will not impact the potential availability of the Rule 506(c) exemption.

Pre-existing relationship include vendors, customers and suppliers as well as existinginvestors and shareholders. Under these circ*mstances,an investors is not identified as a result ofthe public offering and did not contact the issuer as a result of the general solicitation by means of the registration statement. As such, the Rule 506 offering can be conducted while the registration statement is pending.

Rule 506(c) shouldstreamline integration issuessince general solicitationcan be used in connection with a Rule 506(c) offering. Even where Rule 506(c) is relied upon, issuers in going public transactionsshould remember that an offering thatstarts as a public offering must be completed as a publicoffering and a private offering must be completed as a private offering, except in those circ*mstances specified in Rule 155.

For further information about thissecurities law blogpost, please contactBrenda Hamilton,Securities Attorney at 101 Plaza Real S, Suite 202 N, Boca Raton, Florida,(561) 416-8956. Thissecurities law blogpostis provided as a general informational service to clients and friends ofHamilton & Associates Law Groupand should not be construed as, and does not constitute, legal and compliance advice on any specific matter, nor does this message create an attorney-client relationship.Please note that the prior results discussed herein do not guarantee similar outcomes.

Hamilton & Associates| Securities Lawyers
Brenda Hamilton, Securities Attorney
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