Regulation D, Rule 506(c) Blind Pool Offering – Brilliant option of raising funds

Regulation D, Rule 506(c) Blind Pool Offering is a brilliant option to raise a fund in the USA.

Why would I need to register a fund? Well, it’s a simple answer. The financial sector is heavily regulated, and you cannot start raising money without proper registration of your fund with a regulator. If you’re raising money from a few investors, you would need to contact a lawyer and have a set up just a basic Incorporation and prepare Articles of Association or Shareholders Agreement. If you are pooling more money for the further investment, you should register your company with SEC. There are a few different options to explore 506(b) or 506(c).

I would prefer to go with 506(c). Here are the reasons:

  • Allows general solicitation and advertising in private placement offerings so long as sales are made only to accredited investors. You can advertise your fund (general solicitation) through online media.
  • The fund is registered as the exempted fund.

Purpose of the private equity fund:

  • Private equity (acquiring other companies).
  • Venture Capital Fund.
  • Property Investment.

 

When you set up your fund, you will need to prepare:

  1. Private Placement Memorandum
  2. Subscription Agreement  
  3. Securities Notice Filings
  4. Formation of a Management entity and drafting its Operating Agreement
  5. Formation of a “Fund” entity and drafting its Operating Agreement
  6. Formation of a Single Purpose, Title-holding entity for your first project and drafting its Operating Agreement
  7. Marketing materials (flyers, postcards, website, etc.)
  8. Investment Summary

 

Filing with SEC, you will need to:

  • Open EDGAR (EDGAR is the electronic filing system created by the Securities and Exchange Commission for corporate filings.) account with SEC.
  • Submit Form D to SEC through EDGAR website.
  • “State Blue Sky”  notify the state securities agencies when a security has been sold to one or more or their residents and giving those states information and jurisdiction.
  • Submit soliciting materials to SEC for their approval.
  • Verify that the investors are accredited investors, which could include reviewing documentation, such as W-2s, tax returns, bank and brokerage statements, credit reports and the like.

Timing: The normal time-frame to complete an offering like the Blind Pool Offering is 60-90 days.

I wouldn’t suggest you get this done yourself. It’s heavy lifting. Hire a lawyer and use this article just as a checklist :).

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