http://www.sec.gov/info/smallbus/qasbsec.htm

This site describes in understandable terms how to raise capital without violating the securities laws and provides a good general overview of the process.

Regarding private securities offerings it states:

“You may not use any form of public solicitation or general advertising in connection with the offering.

The precise limits of this private offering exemption are uncertain. As the number of purchasers increases and their relationship to the company and its management becomes more remote, it is more difficult to show that the transaction qualifies for the exemption.”

The site goes on to explain that “Rule 506, another ’safe harbor’ rule, provides objective standards that you can rely on to meet the requirements of this exemption.”