General Solicitation (Securities) - Explained
What is General Solicitation?
If you still have questions or prefer to get help directly from an agent, please submit a request.
We’ll get back to you as soon as possible.
- Marketing, Advertising, Sales & PR
- Accounting, Taxation, and Reporting
- Professionalism & Career Development
Law, Transactions, & Risk Management
Government, Legal System, Administrative Law, & Constitutional Law Legal Disputes - Civil & Criminal Law Agency Law HR, Employment, Labor, & Discrimination Business Entities, Corporate Governance & Ownership Business Transactions, Antitrust, & Securities Law Real Estate, Personal, & Intellectual Property Commercial Law: Contract, Payments, Security Interests, & Bankruptcy Consumer Protection Insurance & Risk Management Immigration Law Environmental Protection Law Inheritance, Estates, and Trusts
- Business Management & Operations
- Economics, Finance, & Analytics
Table of ContentsWhat is General Solicitation?Who is Prohibited from General Solicitation? Academic Research on General Solicitation
What is General Solicitation?
General solicitation is also referred to as general advertising or public advertising. It is a situation where a company publicly advertises stock or other securities owned by the company. In this situation, the company publicly solicits investors or buyers when stocks are available for sale.
Who is Prohibited from General Solicitation?
However, not all companies can engage in general solicitation, given the fact that this public advertising is prohibited under the federal law. Only companies that are registered or meet the requirements of the Security Exchange Commission (SEC) can publicly advertise an offering. Also, there are certain exemptions in the provision that permit private companies to generally solicit certain types of investors. General solicitation is public advertisement in form of magazines, seminars, articles, media adverts, including radio and television advertisement. However, Rule 502(c) prohibits all these forms of public advertisement in soliciting investors for the sale of stocks. The SEC ensured that non-registered companies do not engage in general solicitation. According to the SEC, general solicitation can be examined by looking at pre-existing relationship between a company and the potential investors. A pre-existing relationship between an issuer and a potential investor serve as an evidence that general solicitation did not take place. Some actions are not seen as violation of rule 502(c), these include;
- Submitting a generic questionnaire to investors during fundraising.
- Generic media interview about a company and discussion of new products.
However, print, radio and television advertisements, mass mailings and others are seen as violations of the securities law.
- Note: The JOBS Act added a provision to Rule 506 to allow for general solicitation. We discuss this provision in a separate section.
Academic Research on General Solicitation
- Relaxing the Ban: It's Time to Allow General Solicitation and Advertising in Exempt Offerings, Sjostrom Jr, W. K. (2004). Fla. St. UL Rev., 32, 1.
- Rethinking the Ban on General Solicitation, Daugherty, P. (1989). Emory LJ, 38, 67.
- General Solicitation: Looking for Funds in All the Wrong Places, Yadley, G. C. (1996). FLORIDA BAR JOURNAL, 70, 80-83.
- The JOBS Act and Lifting the Ban on General Solicitation and Advertising: Is the US Ready for Investment Opportunity Infomercials, Gallegos, H. (2012). Loy. Consumer L. Rev., 25, 448.
- Will crowdfunding and general solicitation spur orphan drug development for biotechs?, Loucks, D. (2013). Formulary, 48(10), 343.
- Offers, Sales and Resales of Securities and General Solicitation under Section 4 (a)(1-1/2), Rule 144A, and the New Section 4 (a)(7), Robbins, R. B. (2016). Prac. Law., 62, 49.
- SEC Issues Proposed Rules to Permit General Solicitation and General Advertising in Certain Private Offerings, Mishel, D., Gordon, K. A., Hodge, N. S., & Kinne IV, R. M. (2012). Bus. L. Today, 1.
- Why funds have shunned general solicitation, Thomas, Z. (2015). International Financial Law Review.
- Reconsidering the Prohibition against General Solicitation during Section 3 (c)(7) Offerings, Taub, D. P. (2004). bepress Legal Series, 294.
- SEC Lifts Ban on General Solicitation in Private Placements to Accredited Investors, Aronson, D. H. (2013). Bus. L. Today, 1.
- SEC issues guidance on Rule 144A and Rule 506 offerings regarding general solicitation and general advertising and other aspects of the amended rules, Gelfond, S., Coleman, J., & Ross, K. (2014). Journal of Investment Compliance, 15(1), 58-61.