General Solicitation (Securities) - Explained
What is General Solicitation?
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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.
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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.
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