Exempt Offerings

When you see the term exempt being used in relation to raising capital, it is discussing legal exceptions to the Securities Act of 1933. The Securities Act of 1933 is a federal law passed by Congress that specifies how all companies can raise money from the public. However, Congress found that the complexity and cost associated with complying with the Act shut out small business and start ups. To provide a remedy Congress created exemptions to the Act of 1933. These exemptions made it more affordable for individuals and small companies to raise capital as long as they meet the criteria outlined in the exemption. No person or company can take any investor funds unless they do so in compliance with the Securities Act of 1933. Before you accept any money from any investor whether large or small you need to get a working knowledge of the compliance requirements available under the Regulation D Securities Act of 1933 and choose which exemptions you will be complying with. For start-ups and small operating businesses, you will typically comply with what is called Regulation D Raising capital using the Reg D exemption will significantly reduce your costs as long as you comply with the criteria set out in the exemption. Regardless whether a start-up or operating company, Regulation D Private Placement exemptions will be your best and most cost effective option. Broadly speaking, the difference between a Reg D Private Placement and a Reg A public offering is cost and the ability to sell the shares in the over the counter market after the offering. Reg D Private Placement shares are restricted from sale to the general public until after they are registered in a public offering (IPO). In terms of cost, one can raise money in a Reg D. Private Equity Placement relatively inexpensively. However, the cost of a Reg A Offering will easily be six figures. A Reg A Offering should not be considered unless your company is an operating company, has been in operation for at least 5 to 10 years, and is very profitable earning at least 7 figures per year. There are other rules and exceptions besides the Reg D. and Reg A exemption that are worth a mention. Small Corporate Offering Registration also known as SCOR Offering. A SCOR offering is limited to $1,000,000Keep in mind as we go forward that accounting requirements and listing requirements apply to these offerings. At this point I want to notate the difference between a private placement memorandum and a security offering. With a private placement memorandum you are selling securities or bonds to an investor that carry restrictions preventing the investor from reselling their shares. The only way those securities can be sold to the public is if the company at a later date does a public offering. On the other hand a securities offering such as a Reg A or SCOR Offering does allow the security or bonds to be sold to the public without restrictions.

If you think your company qualifies for a Reg A Offering then you should speak to any regional brokerage firm in your area to discuss all the criteria that need to be met. This is a conversation that should not cost you any money. Typically speaking, the brokerage firm will guide you through everything you need to know to be successful. However, note that there is a difference between a brokerage firm making a firm commitment versus a best efforts commitment. This difference could have you spend thousands of dollars preparing for an offering and not raise any money. It is a process that you wish to get several opinions before committing yourself to a course of action. The dollar limit on a Reg A offering is $5 million. Companies also can offer their shares to the public under Reg A without a brokerage firm but it is not recommended.

Are you deciding whether to proceed or even how to proceed raising capital for your business or a new start up; you will find that there is a great deal of free information on this website. If you have decided to take your project to the next level you may want to consider reviewing our audio seminars. These seminars not only provide much higher level of knowledge and information but on completion allow you structure a “game plan” of what needs to be done and how to do it.

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