The Securities and Exchange Commission has at last announced new rules that will permit public advertising of “private” securities issuances. The new rule is broad and will likely have a major impact on how startup companies and hedge funds raise capital.

The public advertising, or “general solicitation,” rule change came about as a result of the JOBS Act. The JOBS Act was enacted in April 2012. It changes the laws surrounding private securities, and mandated that the SEC implement rules reflecting the changes. General solicitation was one of those changes. Crowdfunding was another, perhaps more popular, of the changes. These new rules are expected to make it easier for startups to raise funding. And the startup community is appreciative.

Under prior law – which will be effective until this new rule is finalized – it was illegal to publicly ask for an investment in a company that was not registered with the SEC. Since registration is burdensome and expensive, this rule meant that most startups had to raise their capital from people they already knew or had a connection to, or from institutional investors like venture capitalists. Even casual public advertising was illegal.

Under the newly proposed rules, which will become final after the SEC takes comments, a private offering of securities under Rule 506 may now be made quite publicly – billboards, television, radio, even the internet – it’s all fair game. Startups may now publicly proclaim that they are interested in raising capital and on what terms. Banner ads, unsolicited e-mails, and blind mailers to high-net-worth zip codes could be the new fundraising norm. And this rule change goes for hedge funds as well as startups, so if you read the Economist or New York Times, or watch Bloomberg TV, prepare for hedge-fund ad inundation.

The only catch under the new rule is that all investors have to be accredited, which means they must be worth $1 million, or earn $300,000 per year. And it’s the responsibility of the startup company or hedge fund to take reasonable steps to verify that investors are accredited. This can be accomplished through a fairly extensive investor questionnaire.

If you are familiar with Rule 506, you may be thinking that this accredited-investor requirement is no different from what’s already on the books. In fact, under the previous version of Rule 506, a company could raise money from a small number of non-accredited-but-sophisticated investors. But for companies that intend on publicly advertising their securities, that exemption is gone. All investors must be accredited. This will end up being a trap for the unwary. Non-accredited friends, family, and even corporate officers will now be prohibited from buying into a startup’s publicly advertised seed round.

Interestingly, the SEC has decided to keep the old Rule 506 in place as a parallel fundraising structure. So if you don’t need to publicly advertise your startup – if you are just raising a small seed round and would like friend and family participation – you can keep the round private, as before, and accept a few non-accredited investors.