Rule 504 and 505 Offerings
Federal Regulation D actually contains provisions for three types of limited offerings in Rules 504, 505, and 506. Rule 504 contains an exemption for an offering up to $1,000,000 in …
Notice Filings of Securities
The National Securities Market Improvement Act of 1996 preempted state registration provisions for transactions that are exempt from registration under Rule 506 of Regulation D of the Securities Act of …
State Securities (Blue Sky) Laws
Blue sky laws is the term given to the myriad state regulations that are written to protect investors. The term blue sky originated in the early 1900s when a Supreme …
Integration of Offerings
One of the limitations with a Rule 506 offering is that you are limited to thirty-five nonaccredited purchasers in any one offering, and you cannot get around this limitation by …
The Sale of Securities and the Issuer Exemption
Once you have decided to sell securities in your company, you can sell them yourself under what is called an issuer’s exemption or you can engage a licensed broker-dealer to …
HOW TO…Sell Securities in a Private Placement
□ Prepare a private placement memorandum with appropriate appendices and a subscription agreement. □ File a Form D with the SEC and then file with each state in which a …
HOW TO…Begin Drafting a Private Placement Memorandum
Work closely with an attorney that specializes in securities law to draft your PPM. To begin the process, organize and provide copies of the the following documents to your attorney: …
Disclosure Requirements
The guiding principle behind all offerings of securities, whether public or private, is full disclosure of all material facts concerning the company and the offering. This is so an investor …
The Rise of Rule 506 of Regulation D
In 1982, the SEC adopted Regulation D, which provided three exemptions from registration under the 33 Act—Rules 504, 505, and 506. If the guidelines are followed, these rules collectively provide …
Brief History of Securities Laws
The states got into the act first. Massachusetts enacted a law in the 1850s that regulated the sale of railroad stock. In 1911, Kansas adopted the first securities statute with …
Understanding Securities Laws
What is a security? Basically, securities have been held to exist in any case in which a person provides money to someone with the expectation that they will derive a …
5 Securities Law
T Understanding Securities Laws T Brief History of Securities Laws T The Rise of Rule 506 of Regulation D T Disclosure Requirements T The Sale of Securities and the Issuer …
Combining Equity and Debt Financing
Recently, there have been some offerings that combine both debt and equity in order to give the investors some liquidity in a debt instrument and a possible upside for growth …
Private Debt
A company can raise capital by offering a debt instrument to investors as opposed to an equity instrument. For example, the company could offer secured or unsecured promissory note obligations …
SBIC Financing
The Small Business Administration (SBA) also sponsors an equity investment program known as the Small Business Investment Corporation (SBIC), which is a series of privately owned investment funds licensed by …
Merchant Banking
Historically, merchant banks have not been commercial banks that accept deposits, but private banks with access to private equity funds. That said, many of the traditional lending banks have ventured …
Revenue Participation/Royalty Financing
Revenue participation or royalty financing occurs when an investor buys a percentage of a future revenue stream of the company. This type of financing can be risky for the investor …
Factoring
Factoring, also known as receivables financing, is a popular form of raising capital. While it is not for everyone, it can be useful if your business has a large volume …
Reverse Mergers
The subject of reverse mergers, where a company merges into a publicly traded shell company, is well beyond the scope of this book. Any start-up company would be well-advised to …
Financial Brokers
You will undoubtedly cross paths with financial headhunters or brokers during your quest for financing. These individuals or companies usually work for a commission and typically want a portion of …
Life Insurance Borrowing
You may also consider borrowing against your life insurance policy, assuming that you have the kind of whole life policy that builds cash value. The interest rates are less than …
Retirement Funds
You can always use self-directed IRA accounts of investors as a source for financing. Owners of self-directed plans can make investments in private companies. However, there are certain disqualified persons …
Home Equity Lines
In the initial start-up phase of the business, other direct sources of financing include home equity lines. The home equity line is essentially asset-backed borrowing. You could do the same …
Credit Cards
Many entrepreneurs use credit cards to initially finance their business. If you go this route, you need to treat the credit card debt as an installment loan and pay it …
Small Business Administration (SBA)
The Small Business Administration (SBA) (Www. sba. gov) has a number of loan programs for small companies. Its basic 7(a) loan guarantee program is perhaps the best known. The program …
Debt Financing
Bank Loans Small Business Administration (SBA) Credit Cards Home Equity Lines Retirement Funds Life Insurance Borrowing Financial Brokers Reverse Mergers Factoring Revenue Participation/Royalty Financing Merchant Banking SBIC Financing Private Debt …
Raising Capital in Stages
When you start your company, you may end up having to give away a healthy portion of your company in exchange for little money because you have nothing more than …
Limited Liability Company and Limited Partnership Equity
As you may recall, limited liability companies (LLCs) and limited partnerships (LPs) are pass-through tax entities. This means that they file tax returns but do not pay any income tax. …
Warrants
An often overlooked source of equity financing is the issuance of warrants. A warrant is a contractual right to acquire some shares of a corporation at a specified price for …
Corporation Equity
The equity of a corporation is called stock. Typically, you will hear the stock in a corporation referred to as shares of stock. A corporation may sell its stock to …
Ownership
Equity financing involves selling a percentage of ownership in the company to an investor. The advantage of equity financing is that the company does not incur a debt obligation that …
Equity Financing
T Ownership t Corporation Equity t Warrants T Limited Liability Company and Limited Partnership Equity T Raising Capital in Stages Equity is an ownership interest in a company. In a …
HOW TO…Get Their Attention with Your Business Plan
□ Have a snappy executive summary. □ Have your contact information clearly stated. □ Keep the initial plan short—ten to twelve pages. □ Talk about your business and revenue model …
What the Experts Say
The most frequent complaint among venture capitalists and other business plan reviewers is that the plan does not clearly explain both the opportunity and risks. This comment is equally applicable …
Consultants vs. Do-It-Yourself
You are encouraged to write your own business plan—at least the initial draft. If you are not experienced in this process, use software to assist you. Entrepreneurs need to answer …
