Security Law Concerns When Raising Money for a Business Opportunity

We are migrating this blog to Facebook and our website.
 Please visit  www.facebook.com/senneysays and "Like" our page. 
~Or~
Send your email address to: jsenney@pselaw.com to receive the latest blog by email.

Starting or growing a business takes money.  Sometimes a lot of money.  Often more than the business owner has access to.  There are many ways to raise money for a business.  You can borrow money from friends and family.   Or you can ask friends and family to invest and become partners.   You can ask suppliers or even competitors to lend money or become a partner in your new venture.   Or you can seek out angel investors who find your project interesting.  You can borrow money or you can sell stock or LLC ownership interests.  In each of these situations, federal and state security issues arise.

As a general rule, security offerings must be registered with the Securities Exchange Commission and the various state security agencies unless otherwise exempt.  There are a number of exemptions that might apply in a particular situation.  At the federal level, the most common exemptions are the intrastate exemption (only offer to residents of a single state), sales only to accredited investors (persons of high net worth and/or income) and other Regulation D offerings.   Regulation D offerings are offerings to accredited investors and up to 35 non-accredited investors where certain disclosures concerning the business, the business owners, the securities being offered, and the risks and rewards of the securities are made to investors.

At the state level, offerings are often exempt when less than a specified number of persons in the state acquire the security.  For example, in Ohio sales to 10 or fewer persons in a rolling 12 month period are exempt.  Most states also have exemptions that parrot the Regulation D exemptions.

When doing a Regulation D offering, there can be no general solicitation.  A Form D is prepared and sent to the SEC.  The state security agencies where the investors reside are notified of the offering.  Investors are provided with an offering circular, a subscription agreement and an investor statement.  The offering circular describes the risk and rewards of the offering, and can be used to defend the issuer from claims by investors that the issuer misled them with false information.  The investor statement requires the investor to state where he or she resides and whether he or she is an accredited investor.  The subscription agreement requires the investor to specify exactly how much he or she will invest in the securities.

If you are trying to raise money to start a business or expand an existing business, we can help you avoid running afoul of the federal and state security laws.  Committing security fraud can subject the issuer to treble damages and possible civil and criminal actions.  Please call or email us with any questions or comments at 937-223-1130 or jsenney@pselaw.com.

AND ONE MORE THING.  The State of Ohio like many states is trying to raise revenue.  The state has engaged many private attorneys and collection firms to track down unpaid tax assessments.  Many of the assessments they are trying to collect are 20 to 30 years old.  The tax returns, cancelled checks and other information taxpayers would use to defend against these assessments has often been discarded.  If you receive a notice from a tax collector seeking to collect an unpaid tax assessment, give us a call or email at 937-223-1130 or jsenney@pselaw.com.