Many businesses eventually hit a stage where they could use an influx of capital, whether to push through the pains of the start up phase or to scale the business. Unless the current owners have the funds to contribute themselves, businesses often bring in new investors to raise capital.
Business owners should be cautious at this stage because depending on the circumstances, the business could unwittingly be participating in an unregistered securities offering. A commitment of money (or other value) in a common venture with an expectation of profit while relying on the efforts of others is considered an investment contract and would likely be regulated as a security. Read more about the securities commonly offered by companies.
Owners should be diligent in the capital raising process to make certain that they are complying with applicable securities laws and regulations. Don’t fall for the pitfall of the friends and family round. All securities offerings must register with the applicable authorities unless exemptions exist for the particular securities or the transaction. Read about the common federal exemptions that most private companies rely on when offering securities for investment.
Acquiring financing doesn’t need to be overly complicated, but compliance with applicable regulations should be a priority for any savvy businessperson.
O’Brien Law assists clients with federal Regulation D securities offering compliance. The attorneys at O’Brien Law are available to discuss your anticipated capital raise and potential representation to guide you through the requirements.