TAKING
YOUR COMPANY PUBLIC Also see the article
on this site, “Raise Money for Your Business”.
How do businesses grow and prosper in our country? They raise money using legal securities offerings through 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. 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.
Registered/Public Offerings
- Unlimited Funds
Registered/Public Offerings - Glossary
- Smaller Reporting Company. Generally, this is a private Company that had annual
revenues of less than $50 million for the past year or a public Company that has outstanding securities valued at less than
$75 million computed according to SEC regulations.
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.
Registered securities can be offered publicly to an unlimited number of investors and are not Restricted, meaning they are
freely tradeable in the secondary market after the offering.
The most
commonly used registration form is lengthy. It 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. Audited financial statements for two years or the life
of the Company, whichever is shorter, are required.
In some cases, the
registration form selected allows documents on file with the SEC to be incorporated by reference.
Smaller Reporting Companies are subject to less onerous reporting requirements. To raise unlimited funds from investors, there
is a Safe Harbor.
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.
Offerings 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 Reserved
NOT INTENDED AS LEGAL ADVICE - CONSULT WITH A QUALIFIED ATTORNEY BEFORE RELYING
ON THIS INFORMATION
