Developing a Business in a Bad (or Any) Economy

DEVELOPING A BUSINESS IN A BAD ECONOMY

How do businesses grow and prosper in our country? They raise money with legal securities offerings with notice to or registration with the Securities and Exchange Commission of the United States Government.

It is not legal to solicit investors for a business without complying with securities laws. Notice to or registration with the SEC regarding a Company's stock, debentures and promissory notes may be required. Legal counsel is therefore essential for any business that wants to raise money and expand.

Registered/Public Offerings - Unlimited Funds

Registered/Public Offerings - Glossary
See Securities Law Glossary on this web site

Registered/Public Offerings - Unlimited Funds

Approximate average time from consultation to completion of documents/filing: two months, depending on accountant’s time frame.
Time from completion of documents/filing to selling: depends on SEC time frame.
Attorney’s fees not including accounting fees: $25,000.00 to $100,000.00 depending on complexity.
* unlimited number of investors.
* securities are not Restricted but are freely tradeable.
* most common form is lengthy, describing business: properties; competition; officers and directors and their compensation; material transactions between/among the Company, its officers and directors; legal proceedings; the plan for distributing the securities; and intended use of proceeds.
* describe risks including: business history; adverse economic conditions; lack of market; dependence on key personnel.
* audited financial statements required.
* registration form may allow documents on file with the SEC to be incorporated by reference.
* Smaller Reporting Companies are subject to less onerous reporting requirements.

Exempt Offerings - Private Placements

Exempt Offerings - Private Placements - Glossary
See Securities Law Glossary on this web site

Private Placements - Raising Up to One Million Dollars
Approximate average time from consultation to completion of documents/filing: one month. If accountant is used, time frame may vary depending on accountant’s time frame.
Time from completion of documents/filing to selling: no wait.
Attorney’s fees not including accounting fees: $10,000.00 to $25,000.00 depending on complexity.
* Company cannot be a Reporting Company.
* raise up to a million dollars.
* sales must occur within a 12 month period.
* solicitation is prohibited.
* in most cases purchasers receive Restricted Securities.
* comply with the laws of the state(s) in which the securities will be sold.
* Form D is needed.
* investors will receive freely tradable securities under certain circumstances, depending on the state selected (in which case time frames listed above will vary according to state review).
* Form U-7 is used for certain regional offerings in which review by multiple states can be consolidated.

Private Placements - Raising Up to Five Million Dollars

Approximate average time from consultation to completion of documents/filing: two months, depending on accountant’s time frame.

Time from completion of documents/filing to selling: no wait.

Attorney’s fees not including accounting fees: $10,000.00 to $50,000.00 depending on complexity.

* raise up to five million dollars.

* audited financial statements required.

* sales must occur within a 12 month period.

* unlimited number of Accredited Investors and up to 35 other persons.

* if there are non-Accredited Investors, disclosure is same as for a registered offering.

* Solicitation is prohibited, and in all cases purchasers receive Restricted Securities.

* Form D is needed.

Private Placements - Raising Unlimited Funds

Approximate average time from consultation to completion of documents/filing: two months, depending on accountant’s time frame.

Time from completion of documents/filing to selling: no wait.

Attorney’s fees not including accounting fees: $10,000.00 to $50,000.00 depending on complexity.

* raise unlimited funds from investors.
* Safe Harbor.
* audited financial statements required.
* Solicitation is prohibited, and in all cases purchasers receive Restricted Securities.
* Company may sell its securities to an unlimited number of Accredited Investors and up to 35 purchasers who are Sophisticated investors.
* if there are non-Accredited Investors, disclosure is same as for a registered offering.
* Form D is needed.

Other Offerings

Intrastate Offering Exemption

Approximate average time from consultation to completion of documents/filing: two months. If accountant is used, time frame may vary depending on accountant’s time frame.

Time from completion of documents/filing to selling: wait depends on state review time frame.

Attorney’s fees not including accounting fees: $10,000.00 to $50,000.00 depending on complexity.

* Company must be incorporated in the state where offering securities.
* make offers and sales only to residents of that state who do not resell the securities for a prescribed period.
* Safe Harbor.

Regulation A - Raising Up to Five Million Dollars

Approximate average time from consultation to completion of documents/filing: two months, depending on accountant's time frame.
Time from completion of documents/filing to selling: depends on SEC review time frame.
Attorney’s fees not including accounting fees: $15,000.00 to $50,000.00 depending on complexity.

* exempt offering not exceeding $5 million in any 12-month period.
* offering statement describes your business and its: properties; competition; officers and directors and their compensation; material transactions between/among the Company, its officers and directors; material legal proceedings; plan for distributing the securities; and the intended use of proceeds.
* risks must be described, including: business history; adverse economic conditions; lack of market; and dependence upon key personnel.
* securities are freely tradeable in the secondary market after the offering.
* principal advantages of Regulation A offerings, as opposed to full registration, are:
        ** financial statements are simpler and don't need to be audited;
        ** no Exchange Act reporting obligations after the offering unless the Company has more than $10 million in total assets and more than 500 shareholders;
        ** Companies may choose among three formats to prepare the offering circular, one of which is a simplified question-and-answer document; and
        ** It is permitted to "test the waters" to determine if there is adequate interest in your securities before going through the expense of filing with the SEC.
* Reporting Companies and Blank Check Companies cannot use Regulation A.
* selling shareholders can usually use Regulation A to resell up to $1.5 million of securities.
* "test the waters" using solicitation and advertising to determine whether there is enough market for your securities before you incur the costs associated with filing an offering statement.
* no soliciting or selling securities until SEC completes its review of the filed offering statement.

Accredited Investor Exemption - Raising Up to Five Million Dollars

Approximate average time from consultation to completion of documents/filing: one month, depending on accountant’s time frame (if an accountant is used).

Time from completion of documents/filing to selling: no wait.

Attorney’s fees not including accounting fees: $10,000.00 to $50,000.00 depending on complexity.

* total offering price is less than $5 million.
* Solicitation is prohibited.

California Limited Offering Exemption - Raising Up to Five Million Dollars

Approximate average time from consultation to completion of documents/filing: two weeks, depending on due diligence review. If accountant is used, time frame may vary depending on accountant’s time frame.

Time from completion of documents/filing to selling: no wait.

Attorney’s fees not including accounting fees: $10,000.00 to $25,000.00 depending on complexity.

* certain California connected companies may use exemption from registration.
* offers and sales of securities of up to $5 million which satisfy the conditions of California law.
* sales to "qualified purchasers", which are similar to Accredited Investors.
* Solicitation prior to sale is generally permitted.

NOT INTENDED AS LEGAL ADVICE - CONSULT WITH A QUALIFIED ATTORNEY BEFORE RELYING ON THIS INFORMATION