General solicitation refers to any public advertising, marketing, or communication used to attract investors to a securities offering. Under Rule 506(b), general solicitation is prohibited. Under Rule 506(c), it is permitted.
Why It Matters
If your fund relies on Rule 506(b), even a single instance of general solicitation can disqualify the entire offering. The consequences are severe: the fund loses its federal exemption, and every sale of securities may become a violation of the Securities Act. Understanding where the line falls between permissible relationship-based outreach and prohibited general solicitation is a daily concern for any fund raising capital.
Key Details
- General solicitation includes advertisements, public websites, social media posts, cold emails, conference presentations to general audiences, mass mailings, and media appearances.
- A "pre-existing substantive relationship" exempts a communication from being classified as general solicitation under Rule 506(b). The relationship must exist before any offer is made and must be sufficient for the issuer to evaluate the investor's sophistication.
- The line between relationship-based outreach and general solicitation is fact-specific. Context, timing, and the nature of the prior relationship all factor into the analysis.
- Under Rule 506(c), general solicitation is fully permitted, but every investor must be verified as accredited through reasonable steps.
- Third-party platforms and placement agents can create general solicitation risk if their marketing activities are attributed to the fund.
For more, see Rule 506(b) vs. Rule 506(c).
Capital Company handles investor relationship documentation and offering compliance as part of fund administration.
This content is for informational purposes only and does not constitute legal, tax, or compliance advice. Consult qualified counsel for guidance specific to your situation.