• Aug. 23, 2017, 8:35 am

Understanding how regulation D 506 c changes the real estate landscape

home-renoWhen the Jumpstart Our Business Startups Act (JOBS Act) was passed by the Congress, startup businesses received the news with a lot of excitement and anticipation. The JOBS Act aimed at encouraging startup businesses to raise capital, even from non-accredited investors.

The act altered and added securities regulations that had previously prevented small businesses to easily access capital.

Under the JOBS Act, Regulation D 506 underwent several changes. These changes have an impact on the way small businesses are allowed to raise capital. Previous to the approved Regulation D 506, it was  known as 506 b.

The 506 b regulation allows unlimited number of accredited investors and only 35 non-accredited investors with the non-solicitation ban still in effect. With the new JOBS Act, Regulation D 506 allows only accredited investors for fund solicitation.

The solicitation ban was removed. This was a good move, for the 80+ year old solicitation ban has had a negative impact in the market, especially on the capability of small businesses to raise capital.

Regulation D 506 c brought about mixed reactions in the business industry. Private equity that used to dominate the industry will find new challengers. Small private and public businesses via Private Investments in Public Equities will now be able to raise more capital, and startups too, to fund their initial operations.

With Regulation D 506 c, certain methods will be used to verify that the natural persons purchasing securities are accredited investors. These methods, however, are not compulsory for other financing options, hence  this allows the public other investment opportunities such as crowdfunding.

Regulation D 506 c is mainly concerned on the policies and procedures in the documentation and offering process that investors have to comply. As far as offering documents are concerned, Regulation D 506 c clearly states that certain standardized selling restriction legends need to be uninvolved. This is basically aimed at making the process faster and attractive to interested investors. Besides, subscription documents also need to be updated so as to help in verifying accredited investors.

Regardless of the perspective on how you look at Regulation D 506 c, the whole idea of JOBS Act, with Regulation D 506 c in it,  is to enable small businesses catch up with the happenings in the 21st century.

The new key variations to securities law are aimed at giving small businesses the power to raise capital,  and conduct business competitively. The public is given more power in terms of raising capital, investing in public projects, owning property and building wealth.

The business platform is expected to be neutralized, and every person given an equal chance to make money regardless of their individual capability to raise funds. Regulation D 506 c will give the public more power and opportunities to be actively involved in running businesses and creating wealth.

Regulation D 506 c removes some of the major restrictions that have been in existence for more than eight decades. These restrictions have locked out many startups from establishing and building their businesses.

Most of the major industries that contribute to the state’s economy, such as real estate sector, were only for private companies that have the capability of raising large capital, and paying off high legal fees as business operation costs. This also constrained the dreams of many people in the States. The provisions contained in Regulation D 506 c are expected to change things and make the business environment friendlier to startups.

Most importantly, the public will have a great opportunity to be involved in creating wealth in the States. More real estate investments are expected to increase as more citizens will be able to afford to buy properties,  and change their status from renters to owners.

Prior to investing,  every person should consult extensively to be able to make a sound  investment decision. The new rules under the JOBS Act may confuse many individuals and lead them to make uninformed decisions.

There are many organizations that give updates on new developments on the JOBS Act and Regulation 506 c. Keep yourself abreast on Regulation D 506 c and other related developments by reading blogs, articles or visiting relevant  sites including the Securities Exchange Commission website.

Keep reading, my friend.

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