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Rule 241

Definition of Rule 241, the generic solicitation of interest rule that lets a company test the waters before it has chosen which securities exemption to use.

Rule 241 (17 CFR 230.241) is the Securities Act rule that lets a company gauge investor interest in a contemplated exempt offering before it has decided which exemption to use. It is sometimes called the generic solicitation of interest rule. The company may communicate orally or in writing, but it may not solicit or accept money or any commitment until it has chosen an exemption and met that exemption's requirements.

Origin

The SEC adopted Rule 241 in November 2020 as part of its exempt offering framework amendments, effective March 15, 2021. It sits alongside the exemption-specific rules for testing the waters: Rule 206 for Regulation Crowdfunding and Rule 255 for Regulation A. Rule 241 is for the company that is still weighing, for example, a Reg CF raise against a Tier 2 Reg A offering or a Regulation D placement.

Required statements

A generic solicitation must state, in substance, that:

  1. the issuer is considering an offering exempt from registration but has not determined the specific exemption it will rely on
  2. no money or other consideration is being solicited, and if sent in response, will not be accepted
  3. no offer to buy can be accepted and no part of the purchase price can be received until the issuer determines the exemption and meets its filing, disclosure, or qualification requirements
  4. an indication of interest involves no obligation or commitment of any kind

A written solicitation may include a way to give an indication of interest, and the response form may ask for a name, address, telephone number, and email address. The communications are offers for antifraud purposes. The rule text is at Cornell LII, 17 CFR 230.241.

Conditions that follow the solicitation

The SEC's compliance guide describes two carry-over conditions:

  • If the company starts a Regulation A or Regulation Crowdfunding offering within 30 days of the generic solicitation, the solicitation materials must be made public as an exhibit to the offering documents (Form 1-A or Form C).
  • If the company sells under Rule 506(b) within 30 days of the generic solicitation, it must provide the materials to any purchaser who is not an accredited investor.

A public generic solicitation is also a form of general solicitation, which can complicate a later Rule 506(b) offering to the same audience.

State law

Rule 241 does not preempt state securities law. Because the exemption is undecided, the covered-security status that comes with Tier 2 Reg A, Reg CF, or Rule 506 is not yet available, so a generic solicitation remains subject to each state's blue sky laws on offers. That is the main practical cost of the rule compared with Rules 206 and 255.

Further reading

This page is general information about securities rules, not legal advice. Whether Rule 241 fits a particular plan, and where a solicitation may be seen, are questions for the company's own securities counsel.

Topics:glossarycrowdfundingregulation

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