The Small Corporate Registration was designed specifically for small businesses. It allows small companies to raise equity or debt capital publicly without having to register with Securities and Exchange Commission. It is designed to streamline the state review process by using standardized forms and reviews. Each states separately reviews the company’s filings and issues a permit allowing general solicitation to the public in that state.
Permits are generally issue within 30 days ( in Nevada) or it may take up six months (as is the case in California) depending on each state’s regulatory standard.
This form of registration is available to small securities issuers pursuant to Regulation D, Rule 504, of the Securities and exchange Act of 1933, as amended.
It allows small companies to be able to raise up to one million dollars in equity financing with certain limitations and guidelines. This program is known as Registration By Exemption because it is basically a hybrid between a public offering and a private placement.
This type of offering is often referred to as DPO, or Direct Public Offering because the stock can be sold to the public without the use of an underwriter or agent (Broker). These securities can also be sold to the public and be resold into established secondary market.
Under an SCOR offering a company can advertise for investors, and sell securities to anybody who expresses an interest, this provides a great advantage over a 504 offering where the offering is restricted to only 35 non-accredited investors.
Being able to list the securities on the Nasdaq Bulletin Board or the Pink Sheets is another positive for DPO’s because it makes the investment more liquid and appealing to investors.
You can anticipate receiving comments from examiners in many of the states in which registration is sought, depending on the regulatory approach taken by the state, those comments may be limited to request for disclosure of additional information or may require certain terms of the offering to be modified with the states fairness laws.
Failure to resolve outstanding comments can lead to denial of application for registration by the state. The states may make applicable substantive fairness standard as an appendix to the filing instructions or make use other means to make the available.
SCOR offering may be done in selected states and it requires audited financial statements. An experience securities lawyer is required, one that is familiar with the process and is familiar with states requirements.
The issuer must be incorporated since it will selling stock in the corporation, It must have a Business Plan because much of the information required in the offering circular can be taken from the business plan.
A company should gauged investors interest in the offering before launching a DPO. Some of the advantages of a DPO are that it be advertise to the public, the company can solicit investors, and it works best when offered directly to targeted group.
These groups are referred to as affinity groups or groups that have some type of connection with the company, its product or it services. A company that can easy contact its customer has an advantage over one that may have many customers but no information on them at all. For example a company in the medical field may target doctors, but since it is impossible to know all the doctors in the area it may need to purchase a list of doctors from a direct mail company.
Regulation D 504 does not require audited financial but you can only sell to 35 non-accredited investors the rest must be accredited.
Soliciting and advertising for investors is not allowed. An accredited investor: · A natural person who has individual net worth, or joint net worth with the person’s spouse, that exceeds $1 million at the time of the purchase.
· Accredited investors are natural persons with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year.
· A broker/dealer registered with the Commission under the Exchange Act purchasing for its own account as an investment is included. [Rule 501(a)(1)].
· A trust with assets in excess of $5 million, not formed to acquire the securities offered, whose purchases a sophisticated person makes.
· A charitable organization, corporation, or partnership with assets exceeding $5 million. · A director, executive officer, or general partner of the company selling the securities. Regulation D 504 Is easy, fast and inexpensive to prepare. No underwriter, broker or agent is required, stock may sold company employees.
None of these type offerings are one-sized fits all each must be evaluated on its own merit and the needs of the company. Nor are these the only options.
Upon completion of the offering the company must request for a Market Maker to file form 15c211 to have the shares of the company publicly quoted.
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