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What is an “Accredited Investor”? Why you should care.

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 If you're setting up financing for your next film, theatre, or new media production, and you're planning to talk to potential investors, you need to know the rules.  Whenever a company sells investment opportunities, in which the investors will be ‘passive', not taking any meaningful role in the management of the business, the transaction involves the offering and sale of the company's securities.

Securities Registration and Exemptions

Under the Securities Act of 1933, a company that offers or sells its securities must either: (1) register the securities with the SEC, or; (2) conduct the transaction under an exemption from the registration requirements.

Since registration is a colossally time consuming and expensive process, it is best left to larger financing projects;  those in the tens- or hundreds-of millions of dollars, such as the IPO's we typically hear about and other transactions involving publicly-traded securities. Most low- and mid-budget motion pictures, plays, musicals and media productions simply can't afford the time or money involved with a registered, public securities offering.  So, the exemptions become important.

The Act provides companies with a number of exemptions.   The most commonly recommended by lawyers for entertainment projects  arise under the SEC's Regulation D.   For some of the exemptions, such as rules 505 and506 of a company may sell its securities to what are known as “accredited investors.”

What is an Accredited Investor?

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Update on status of Jobs Act revisions to Regulation D, Rule 506 securities offerings

Raising capital

Last April, Congress passed, and President Obama signed into law, the JOBS Act.  One important component of that act loosened restrictions on the way film and theatre producers companies can obtain financing through private offerings under Rule 506.  This has been the preferred approach to independent financing for films and theatre projects for some time, largely due to simplified State “Blue Sky” procedures.  Now, things are getting even better for those seeking investment under this system.

The JOBS Act requires the SEC to implement rule changes to allow  previously prohibited general solicitation (i.e., public advertising) of offerings, provided the offering is made only to Accredited Investors (investors who satisfy certain wealth, income and investment sophistication standards).

These changes represent the most significant change to the Regulation D private placement  system in several years.  This will result in far more effective promotion of Regulation D 506 offerings to investors.  Under the new rules, issuers can create what is essentially a quasi-public offering allowing general advertising and solicitation,  while  keeping the benefits of a true private placement.  

The SEC is expected to finalize the rule changes within the next 90 days.  For now, I'm counseling clients to treat their offerings as  “Rule 506 Accredited Investor Only”  to  allow  us to use the new 506c exemption  once it is available.

If you're considering financing a film or theatre project, it makes sense to plan for the implementation of the new rules, and if appropriate, take advantage of the option for general solicitation.  But, before doing so, it's important to consult with a qualified, experienced entertainment lawyer.

If you're planning a film project in 2013, you won't want to miss our Film Finance Bootcamp. Enrollment is limited, and opens again in January. So, sign up at, and we'll let you know as soon as spots are available.

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