Money for Small Business – Is a Public Offering an Alternative?


Initial public offering (IPO)

This seems to be the ideal solution for a small business looking for money: go public and raise millions of dollars. Should you make your company public? If your business has a proven profitable experience and is ready for substantial growth, then maybe. You and other current owners can realize a substantial gain by selling a portion of your shares as part of the offer. An IPO is not the answer for all small businesses looking for money.

In addition, its IPO opens the company to additional expense and scrutiny from the public shareholders but also from the Securities Exchange Commission, even if the current owners retain majority control. The IPO process requires concerted efforts, money and many hours of working time for an accountant and the agents as well as registration documents containing detailed information, historical financial statements and auditing. third. And these are reviewed by the SEC.

And you must always sell the stock. Completing all documents does not guarantee that anyone will want to buy your shares at the price at which you offer them.

Rule D and Rule 504 Private Offers

It is illegal to sell shares unless you are allowed to do so or if the stock purchase offer is exempt from the SEC and your public securities. rules of the commission. In 1982, the SEC adopted Regulation D, which sets out the rules for federal registration exemptions. Bids exempted under Rules 504, 505 and 506 are a common way to save time and money and time to raise capital from private investors. Keep in mind that, although Rule 504 provides an exemption from federal share offer restrictions, it does NOT provide an exemption from the rules and regulations of each state with respect to offers of securities.

Although SEC Rule 504 does not impose any disclosure requirements, a kind of offering document should be prepared to protect the company and its officers from any future fraud and liability litigation. Rather than getting into what should and should not be included, bring your business plan to your law firm and ask their securities lawyer to prepare the paperwork. offer. Each potential investor then signs a statement stating that he has read the offer document and that he is aware of the risk inherent in such an investment at the time he invests.

Regulation D Certified Investors and Private Placements

Rule D authorizes an issuer of securities to sell securities. Offers of securities must specify that sales will only be made to qualified investors and that sales of securities must be made exclusively to qualified investors. Qualified investors typically include certain types of institutional investors and individuals with net wealth or substantial income. A person to be considered accredited must have a net worth (that is, all of his assets minus all liabilities, including mortgages on housing) in excess of $ 1,000,000 or annual income. $ 200,000 (or joint income with their spouse ($ 300,000) for the previous two years and a reasonable expectation of at least that income in the year the purchase of securities takes place.

Does the small business looking for money through the intermediary of a qualified investor need to verify or document the potential investor? If the investor says that he is accredited, that is all that is needed, but speak to your lawyer and make sure that your business plan, your memorandum of supply and the your stock subscription have the necessary language.

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