Structuring Equity
Offering equity in your company is tricky business. If you don’t play by the rules set down by federal and state securities authorities you can find yourself in a heap of trouble. Therefore, the professionals you choose to help you in the effort must be well versed in the intricacies of the relevant laws and their practical applications.
Your best bet for staying out of hot water with both the securities sheriff and your investors is to move very carefully if there’s even the remotest chance that what you’re doing could be construed as offering an interest in your company. Even if you succeed, a wrong move now can come back to haunt you when you go to raise new money.
Do not ask, advertise, peddle, beseech, urge, implore, influence, solicit, entice, suggest, beg, promise, imply, insinuate, hint, or otherwise offer an interest in your company before you’re sure that you’ve complied with all federal and state securities laws.
Fortunately, if you intend to raise a relatively small amount of money, from a relatively small number of investors, you can use one of the exemptions from federal and state securities law. These exemptions allow you to do what’s called a Private Placement and thereby bypass the complex process of going public.
Contrary to what you might think, your Private Placement Memorandum won’t paint a glowing picture of your company. On the contrary, it will be filled with warnings, in bold capital letters, about the risks inherent in investing in your company. Chances are, when you’re through reading your own Private Placement Memorandum even you may wonder why you’ve money invested in the company. On the other hand, if you do make the offer correctly no one will ever accuse you of misrepresenting the opportunity.
The Finding Money ebook reviews in plain English the regulations involved, defines what an ‘accredited investor’ is, and will help keep you out of trouble with state laws (which may be very diofferent from Federal laws). Some state securities laws, for example, take the federal review process one step further, and may prohibit an offering if they don’t believe that it is “fair, just, and equitable” regardless of whether or not the offer has been approved by the federal SEC.
