Entrepreneurs often find it helpful, if not necessary, to raise capital from outside investors. Friends and family investors, angel investors, private equity or venture capital investors, or retail investors in a syndicated program are all possible sources of investment capital. However, once a business owner goes down the road of taking on investors and “other people’s money,” the owner has likely made the decision, consciously or not, to become subject to federal and state securities laws.
An investment of money in a common enterprise with an expectation of profit being generated from the efforts of someone else is going to fall within the definition of a “security” under the law.
The offer and sale of securities is regulated by both federal and state law, and the dual forms of regulation are independent from one another in many significant respects. In other words, compliance with federal securities law does not necessarily ensure compliance with state securities law. Further, the securities laws from one state to another can vary in material respects.
Generally speaking, the securities laws focus on three variables: (i) the securities being offered for sale, (ii) the parties who offer and sell the securities to investors, and (iii) the disclosure provided to investors.
All securities sold in the United States must either be registered with the Securities and Exchange Commission (“SEC”) and the applicable state securities authorities or qualify for an exemption from the registration requirements. Put another way, there are three types of securities offerings: (i) registered, (ii) exempt, and (iii) illegal. Gogia Law works with companies and sponsors who raise capital through private offerings that qualify for exemptions from federal and state registration requirements.
Regulation D private offerings require careful planning, structuring, analysis, documentation, and a high commitment to compliance. Penalties for violating the securities laws can be severe. Sponsors with little understanding and respect for compliance with securities law can quickly find themselves out of business.
Gogia & Raj Law can represent you or your business in any of these transactions:
Private placement memoranda (PPMs)
Entity formation documents
Managing broker-dealer and selling group agreements
Blue sky survey
Coordination of SEC and state blue sky notice filings
Ongoing assistance with general securities and corporate compliance issues.