Section 260. Rule 506 — Exemption for Limited Offers and Sales Without Regard to Dollar Amount of Offering

Question 260.04

Question: A company is conducting a continuing private offering in reliance on Rule 506, which limits the number of purchasers to 35. There have been 35 purchasers of securities in the offering as calculated pursuant to Rule 501(e). May a company sell securities to additional purchasers in the offering and rely on Rule 506 if some of the original 35 purchasers have now redeemed their securities such that there are currently less than 35 holders of the company's securities?

Answer: No. Once a company sells to 35 purchasers, as calculated pursuant to Rule 501(e), the company has reached the limitation on purchasers as set forth in Rule 506. The fact that a purchaser subsequently transfers or redeems her securities does not reset the number of purchasers or enable the company to sell to additional purchasers. [Jan. 26, 2009]