The process of testing-the-waters involves a company engaging in discussions with specific major investors to gauge their interest in purchasing the company’s stock before officially offering it to the public. This practice is permitted under Securities Act Rule 163B, established by the Securities and Exchange Commission (SEC) in 2019. Prior to this rule, only select companies were allowed to engage in this practice, but now any company can do so as long as they only communicate with specific major investors. This process assists companies in determining whether to sell their stock to the public and also serves to protect investors.
Testing-the-waters refers to the practice of a company engaging in discussions with specific investors to gauge their interest in purchasing the company’s stock before officially submitting the necessary paperwork to sell the stock to the public. The Securities and Exchange Commission (SEC) permits this practice under specific conditions. For instance, if a company intends to offer its stock to the public but is uncertain about the level of interest, it may approach potential investors before formally filing paperwork with the SEC. If these investors demonstrate sufficient interest, the company will proceed with filing the necessary paperwork and selling the stock to the public. The purpose of testing-the-waters is to enable companies to assess the level of interest in their stock before undergoing the costly and time-consuming process of filing paperwork with the SEC. This approach can save the company significant resources if there is insufficient interest in the stock. However, companies are only allowed to approach certain investors and must adhere to specific regulations established by the SEC to safeguard the interests of investors.
Testing-the-waters refers to the process by which companies gauge investor interest in a potential securities offering before filing a registration statement with the Securities and Exchange Commission (SEC).
No, testing-the-waters is only allowed for certain types of securities offerings, such as initial public offerings (IPOs) and offerings made under Regulation A and Regulation Crowdfunding.
The purpose of testing-the-waters is to assess investor interest and gather feedback on a potential securities offering. This helps companies determine whether there is sufficient demand for their offering before incurring the costs associated with a full registration process.
Companies can test-the-waters with qualified institutional buyers (QIBs) and institutional accredited investors (IAIs) under Rule 163B of the Securities Act of 1933. They can also test-the-waters with the general public under Regulation A and Regulation Crowdfunding.
Yes, there are limitations on testing-the-waters. Companies must comply with anti-fraud provisions and cannot solicit or accept money or binding commitments during the testing-the-waters process.
No, companies are not required to file any documents with the SEC during the testing-the-waters process. However, they must keep records of their testing-the-waters communications for a certain period of time.
Yes, companies can rely on testing-the-waters communications to determine the content of their registration statement. However, they must ensure that the information provided in the registration statement is consistent with the information shared during testing-the-waters.
No, there is a time limit for testing-the-waters. For offerings under Regulation A, companies can test-the-waters for a reasonable period before filing the offering statement. For offerings under Regulation Crowdfunding, companies can test-the-waters for a maximum of 30 days before filing the offering statement.
Yes, companies can use social media platforms to conduct testing-the-waters communications. However, they must comply with applicable securities laws and regulations, including ensuring that the communications are not misleading or fraudulent.
No, testing-the-waters does not guarantee a successful securities offering. It is merely a tool to gauge investor interest and gather feedback. The ultimate success of a securities offering depends on various factors, including market conditions and the quality of the offering itself.
This site contains general legal information but does not constitute professional legal advice for your particular situation. Persuing this glossary does not create an attorney-client or legal adviser relationship. If you have specific questions, please consult a qualified attorney licensed in your jurisdiction.
This glossary post was last updated: 16th April 2024.
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