Rule 502: General conditions

Integration (502(a))

Integration decides whether offerings that look separate are really one. If they are, the combined offering has to qualify for a single exemption. Since March 2021, Rule 502(a) points to Rule 152, which replaced the old six-month safe harbor.

• General principle. For an offering that prohibits general solicitation, you need a reasonable belief that each purchaser either wasn’t solicited through general solicitation or had a substantive relationship with you before that offering began.
• 30-day safe harbor. Offerings more than 30 calendar days apart generally aren’t integrated, subject to the general principle when a no-solicitation offering follows one that allowed it.
• Other safe harbors. Employee benefit plan and Rule 701 offerings, Regulation S offerings, certain registered offerings and certain offerings that follow a completed or terminated offering.

Information requirements (502(b))

These apply only when a Rule 506(b) offering sells to a non-accredited investor. The information must reach that investor a reasonable time before the sale. Rule 504 offerings and offerings sold only to accredited investors don’t have to meet them.

• Non-financial information comparable to a Regulation A offering circular, or Part I of a registration statement if the issuer can’t use Regulation A.
• Offerings up to $20 million: financial statement information at the Regulation A Tier 1 level, which must be audited only if audited statements are already available.
• Offerings over $20 million: financial statement information at the Tier 2 level, which must be audited.
• SEC reporting companies can satisfy the requirement with their recent Exchange Act reports plus a brief description of the offering.

You must also describe any written information given to accredited investors and provide it on request, let non-accredited investors ask questions and get answers, and tell them in writing about the limits on resale.

No general solicitation (502(c))

Neither you nor anyone acting for you may offer the securities through general solicitation or general advertising. That includes ads, articles and broadcasts, public websites and social media posts about the offering, and seminars or meetings whose attendees were invited through general solicitation. The exceptions:

• Rule 506(c) offerings
• Rule 504 offerings that meet Rule 504(b)(1)
• Communications at demo days and similar events that meet Rule 148, such as events sponsored by universities, angel groups, incubators and accelerators, within the limits on what the issuer may say

Offering only to people you have a pre-existing, substantive relationship with is the standard way to stay within the ban.

Resale limits (502(d))

Securities sold under Regulation D are restricted. Purchasers can’t resell them without registration or an exemption, such as Rule 144. The issuer must take reasonable care that purchasers aren’t underwriters, which it can show by:

• asking whether the purchaser is buying for itself or for others;
• telling each purchaser in writing, before the sale, that the securities are unregistered and can’t be resold freely; and
• placing a restrictive legend on the certificate or other record of ownership.

Securities sold in a Rule 504 offering that meets Rule 504(b)(1) aren’t restricted.