The U.S. House of Representatives recently passed the Helping Angels Lead Our Startups (HALOS) Act.
The goal of the legislation is to remove regulatory roadblocks that may prevent start-ups from securing funds from angel investors by clarifying what types of communications constitute a general solicitation and subsequently trigger the verification procedures needed to confirm that investors are “accredited.”
General Solicitation Ban Lifted
Companies seeking to raise capital through the issuance of securities must either register the securities with the SEC or rely on an exemption from registration, most commonly Rule 506 of Regulation D (Reg D). In 2013, the SEC amended Reg D to eliminate the prohibition against general solicitation and general advertising, so long as the issuer takes reasonable steps to verify that all investors are accredited.
The new rules, which were mandated under the JOBS Act, offer significant marketing opportunities for startups and other private issuers. However, the SEC has also raised the bar when it comes to verifying an investor’s “accredited” status. Many of the verification methods approved by the agency generally require the provision of sensitive financial information, which raises privacy and compliance concerns among both issuers and investors.
Proposed Changes Under the HALOS Act
The HALOS Act is intended to address concerns that the amendments to Rule 506 may have imposed an unintentional difficulty on fundraising by startups and other businesses. The proposed legislation would allow startups to make presentations to prospective investors at events, such as demo days sponsored by angel investors and other venture capital groups, without running afoul of Reg D.
“The HALOS Act will directly help startups who face the highest risks, but also have the greatest potential,” House Majority Leader Kevin McCarthy stated. “By removing arbitrary rules and allowing angel investors to play a bigger role in funding startups, we give potentially transformative startups more opportunity to get the capital they need early on to stay afloat, grow, and perhaps one day change the world.”
HALOS Act Would Clarify Definition of General Solicitation
Sponsored by federal, state, or local government; a college or university; non-profit; established angel group; venture forum, venture capital association or trade association; or any other group approved by the SEC
Whose advertising does not make any specific investment offerings
Whose sponsor does not make investment recommendations, provide investment advice to attendees, engage in investment negotiations, or charge any entrance fees other than what covers the administrative cost of the event
Where no specific information regarding investments is communicated by the issuer other than that they are offering securities, the type and amount of securities being offered, the amount of securities still available, and the intended use of the funding.
The House passed the Halos Act in its last session; however, the legislation failed to advance in the Senate. Now that the Republicans are in control, the legislation arguably has a much greater chance of becoming law. We will be closely following the status of this legislation and will post updates as they become available. We have recently suggested some improvements needed to resolve issues hampering crowdfunding that also arise from rules promulgated pursuant to the JOBS Act. We encourage business owners to check back for updates on the HALOS Act and other bills that may impact your startup.
Do you have any questions? Would you like to discuss the matter further? If so, please contact me, Dan Brecher, at 201-806-3364.
What Business Owners Get Wrong Before Meeting a Litigation Attorney
What should you expect when meeting a litigation attorney about a business dispute? You should expect to describe the dispute in your own words, hand over the most important documents, flag any deadlines or immediate threats, and leave with a clearer picture of the problem, what information is still needed, and the likely next steps. […]
Arbitration vs. Litigation vs. Mediation: What New Jersey Businesses Should Know Before Signing a Contract
Arbitration resolves disputes privately before an arbitrator whose decision is usually final, while litigation resolves them in court with full rights of appeal. Whether a business ends up in arbitration or litigation is often decided when it signs the contract, long before any dispute arises. Key Takeaways When facing a contract dispute, carefully consider your […]
Can You Own Part of a New Jersey Business Without a Written Agreement?
Can you own part of a business in New Jersey without a written agreement? Yes, it is possible. Under New Jersey’s Uniform Partnership Act, a partnership can arise when two or more people carry on a business as co-owners for profit, whether or not they ever intended to form one. Ownership doesn’t necessarily depend on […]
Crisis-Proofing Your New Jersey Business: Building a Crisis Response Plan Before You Need One
For New Jersey businesses, crisis preparedness should be viewed as a legal and operational function, not simply an emergency-management exercise. A well-designed crisis response plan can help preserve evidence, protect confidential communications, meet reporting obligations, limit unnecessary exposure, and prevent an already difficult situation from becoming a larger legal problem. Key Takeaways A serious crisis […]
Monmouth County's Next Development Wave: What Developers and Investors Need to Know
Monmouth County is entering a significant new phase of development. For those looking to acquire property or undertake a new project, understanding the market opportunity is only the beginning. The more important question is whether a particular property can actually be developed as contemplated and what approvals, agreements, and other conditions will be required to […]
Are Your Conversations with AI Shielded from Discovery? Courts Are Split
Whether a client’s prompts to a generative AI tool and the documents it produces are protected from disclosure depends on the case type, who claims protection, and whether counsel was involved. In United States v. Heppner, a New York federal judge ruled that a criminal defendant’s communications with an AI platform were protected by neither […]
No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.
Sign up to get the latest from our attorneys!
Explore What Matters Most to You.
Consider subscribing to our Firm Insights mailing list by clicking the button below so you can keep up to date with the firm`s latest articles covering various legal topics.
Stay informed and inspired with the latest updates, insights, and events from Scarinci Hollenbeck. Our resource library provides valuable content across a range of categories to keep you connected and ahead of the curve.
Let`s get in touch!
Sign up to get the latest from the Scarinci Hollenbeck, LLC attorneys!
