Jobs Act | Rule 506

Crowdfunding for Real Estate

It is important that investors understand how Realty Funding Source raises capital to execute offering business plans. Utilizing Rule 506(b) of Regulation D outlined in the JOBS Act, Realty Funding Source is able to create partnerships of equity investors - this allows manageable investments for the investors, all cash no debt financing, and larger purchases and improvements. 

JumpStart Our Business Startups Act, 2012

With the passing of the Jumpstart Our Business Startups Act, or JOBS Act, in 2012, the Security and Exchange Commission (SEC) eased previous security regulations to increase American economic growth and job creation. The JOBS Act improves public capital markets to fund a variety of projects for emerging businesses and entrepreneurs seeking capital. Within the JOBS Act the rules and regulations have defined various guidelines for offering and selling securities via crowdfunding. The creation of these rules and regulations on equity crowdfunding have completely changed how capital is raised for businesses and created new and exciting opportunities for investors alike. 

Raising Funds 

RULE 506 OF REGULATION D

Regulation D provides the most common regulatory exemption used by crowdfunding portals today. Rule 506 of Regulation D is considered a "safe harbor" for the private offering exemption of Section 4(a)(2) of the Securities Act. Purchasers of securities offered pursuant to Rule 506 receive "restricted" securities, meaning that the securities cannot be sold for at least a year without registering them. Companies relying on the Rule 506 exemption do not have to register their offering of securities with the SEC, but they must file what is known as a "Form D" electronically with the SEC after they first sell their securities. Form D is a brief notice that includes the names and addresses of the company’s promoters, executive officers and directors, and some details about the offering, but contains little other information about the company.

506(B)

Continuing to define Rule 506 it has been broken down into different exemptions for raising capital. Companies relying on Rule 506(b) exemptions can raise unlimited amount of money if the following guidelines are followed;

• Investments cannot be a public offering; general market solicitation (e.g. TV or print advertisements) are not allowed.
• Companies can approach investors with whom there is a pre-existing relationships.
• Accreditation of investors is done by self-certification by the Company via documents, questionnaire, and background checks. 
• Realty Funding Source follows the SEC's guidance and has developed its own efficient process to complete investor accreditation.
• Not all investors need to be accredited; up to 35 non-accredited investors who meet the requirements can be allowed.
• Companies decide on what information to provide to accredited investors, but that information must not violate anti-fraud prohibitions.
• If non-accredited investors are included; companies must provide investors with disclosure documents
• If a company provides information to accredited investors it must make that information available to the non accredited investors as well.
• Companies must be available to answer questions from all potential investors. 

WHAT IS THE DEFINITION OF A PRE-EXISTING RELATIONSHIP?

Realty Funding Source currently utilizes 506(b) offerings, so there must to be a pre-existing relationship with investors. The SEC answered what constitutes a pre-existing relationship in question 256.29 as;

A “pre-existing” relationship is one that the issuer has formed with an offeree prior to the commencement of the securities offering or, alternatively, that was established through either a registered broker-dealer or investment adviser prior to the registered broker-dealer or investment adviser participation in the offering.