Information Requirements for Non-Accredited Investors

To use Rule 506(b), the issuer must give each non-accredited investor certain information. Rule 502(b)(2) of Regulation D requires disclosure similar to the type provided in a Regulation A offering. For example, depending on the size of the offering, issuers should provide two years of audited or unaudited financial statements, as well as a description of the issuer’s business and the securities in the offering. The issuer must also give non-accredited investors a brief written description of any material information about the offering that is given to accredited investors.

While information delivery requirements are not required for accredited investors, it is best practice to provide the same information to both accredited and non-accredited investors in light of the antifraud provisions of the federal securities laws.

Issuers must give all buyers the opportunity to ask questions about the terms and conditions of the offering and to verify the accuracy of the disclosed written information. This due diligence is often done in a conference call with members of the issuer’s management team and counsel. For Regulation D offerings involving a business combination or exchange offer, the issuer must also provide written information about any terms or arrangements in the proposed transaction that are materially different from those for all other security holders.