We represent your company when raising capital from investors through an exempt security offering, including private placements and offerings under rule 506 of Regulation D.
When a startup needs to raise capital they have few legal pathways available, and navigating securities law can be daunting. The Securities and Exchange Commission (SEC) is a federal regulatory agency with the primary mission of protecting investors, maintaining fair, orderly, and efficient markets, and facilitating capital formation. The SEC relies on a number of core regulations, namely the Securities Act of 1933 (1933 Act) to regulate the sale of securities to protect investors in line with its mandate. To accomplish its mandate, the SEC oversees key participants in the securities world, including securities exchanges, securities brokers and dealers, investment advisors, and mutual funds. In order to publicly raise money, companies must register with the SEC.
Under Federal law, as codified in section 4(a)(2) of the 1933 Act, no registration is required for the sale of any security which is sold directly by the company itself, and which is not sold by any offer to the public. This standard, while vague, makes it much more feasible for startups and small businesses to raise capital to grow their business, expand a product line, or cover other operating expenses. Rules 504, Rule 505, and Rule 506 of Regulation D include "safe harbor" provisions that expressly codify the requirements that apply to any company seeking an exemption to registration on the basis of the elements in 4(a)(2), namely 506(b) and 506(c), exempt private placement offerings. 506(c) for instance, enables companies to generally solicit private investors and raise an unlimited amount of money, so long as they accept only accredited investors, the securities sold are restricted, they provide detailed information to the investors in the form of a private placement memorandum (PPM), and they adhere to certain disclosure requirements.
Companies filing for an exemption under Regulation D must also comply with the anti-fraud provisions of federal securities laws, and prohibit certain persons, such as 'bad actors' from subscribing. The Company must file a "Form D" with the SEC within 15 days of the first sale of a security under the offering. Companies are still required to comply with the blue-sky laws of each relevant jurisdiction.
In light of the complexity of these issues, entrepreneurs seeking to raise capital through exempt securities offerings often turn to experienced securities lawyers. An experienced professional securities attorney can guide your business through the Regulation D process, ensuring compliance with SEC rules, and helping you avoid potential pitfalls that could lead to civil penalties, loss of financial licenses, rescission rights, or even criminal charges.
When searching for a lawyer to assist with Regulation D and exempt raises, seek a law firm that specializes in corporate and transactional law, like Goldstein Law. This choice can provide the essential legal expertise required for a successful and compliant capital raise, letting you focus on growing your business.
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