USING EXEMPT OFFERINGS TO
DEVELOP YOUR BUSINESS
Also see the article on this site, "Raise Money for Your Business".
How do businesses grow and prosper in our country? They raise money through 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.
Identifying
potential investors, providing them with information required by law, and enabling them to make an informed decision about
investing in an enterprise is legal and even supported by our government.
Exempt Offerings - Private Placements
Exempt Offerings -
Private Placements - Glossary
- Accredited Investors. Wealthy investors meeting net worth and income standards
established by the SEC.
- Blank Check Company.
A development stage Company that has no specific business plan or purpose or has indicated its business plan or purpose is
to engage in a merger or acquisition.
- Business.
See Company.
- Company. A business
or enterprise, including a corporation, limited liability company, partnership and limited partnership.
- Form D. Notice to the SEC that includes information
about the offering, the Company, its owners and securities promoters.
- Private Placement. Issuance of securities that are not registered with the SEC. In general,
private placements are less expensive, quicker and often subject to less disclosure than registrations.
- Reporting Company. Certain public companies required
by securities laws to file quarterly, annual and other reports with the SEC.
- Restricted Securities. Shares, debentures or notes that may not be re-sold within six (6) months after
purchase without SEC registration.
- Safe Harbor.
A set of rules that, if followed, assure that a business complies with the law.
- Solicitation. General solicitation or general advertising, including advertisements,
articles or notices appearing in newspapers, magazines, on TV, radio or media, as well as seminars or meetings whose attendees
have been invited through such ads or notices.
- Sophisticated
Investors. Investors with sufficient knowledge and experience in financial and business matters to make them
capable of evaluating the merits and risks of the prospective investment.
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.
If your Company is not a Reporting Company or a Blank Check
Company and you want to raise up to a million dollars for your enterprise, the simplest notice available under SEC rules can
be used to facilitate your goals. Sales must occur within a 12 month period. Solicitation is prohibited, and in
most cases purchasers receive Restricted Securities. You must also comply with the laws of the state(s) in which the
securities will be sold. Form D is needed.
You can use this exemption
for a public offering of your securities and investors will receive freely tradeable securities under certain circumstances,
depending on the state or states selected. In that event, the time frame listed above will vary according to the time
frame for 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.
If you want to raise up to five million dollars, audited financial statements for two years or the life
of the Company, whichever is shorter, are required. Sales must occur within a 12 month period. For this offering,
an unlimited number of Accredited Investors and up to 35 other persons who do not need to satisfy sophistication or wealth
standards are permitted. Solicitation is prohibited, and in all cases purchasers receive Restricted Securities. If there
are non-Accredited Investors, disclosure is same as for a registered offering. 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.
To raise unlimited funds from investors, there is a
Safe Harbor. Audited financial statements for two years or the life of the Company, whichever is shorter, are required.
Solicitation is prohibited. The Company may sell its securities to an unlimited number of Accredited Investors and up
to 35 other purchasers, who, either alone or with a purchaser representative, must also be sophisticated investors.
Purchasers receive Restricted Securities. 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 it is offering the securities; carry out a significant amount of its business in that state;
and make offers and sales only to residents of that state who do not resell the securities for a prescribed period.
A Safe Harbor is available.
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. The 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 involving the Company or its officers and directors; the plan for distributing
the securities; and the intended use of the proceeds. Risks must be described, including: business history; adverse
economic conditions; lack of market for the securities; and dependence upon key personnel. Like registered offerings,
the securities are not "restricted," meaning they are freely tradeable in the secondary market after the offering.
The principal advantages of Regulation A offerings, as opposed to full registration, are:
- The financial
statements are simpler and don't need to be audited;
- There are 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
- You may "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. In most cases, selling shareholders may use Regulation
A to resell up to $1.5 million of securities.
If you "test the
waters," you can use Solicitation prior to filing an offering statement with the SEC, giving you the advantage of determining
whether there is enough market interest in your securities before you incur the full range of legal, accounting, and other
costs associated with filing an offering statement. You may not, however, solicit or accept money until the SEC staff completes
its review of the filed offering statement and you deliver prescribed offering materials to investors.
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. The 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 an exemption from registration
for offers and sales of securities in an amount of up to $5 million, which satisfies the conditions of California law.
Sales must be to "qualified purchasers", which are similar to Accredited Investors. Solicitation prior to sale is
generally permitted.
Copyright
2009 Louise Aron and Patricia Cudd, All Rights ReservedNOT INTENDED AS LEGAL
ADVICE - CONSULT WITH A QUALIFIED ATTORNEY BEFORE RELYING ON THIS INFORMATION
