A
Brief Look at the Dynamics of a Private Offering
The information
contained in this article is intended for informational purposes only
and should not be construed as legal advice or a substitution for obtaining
legal advice from an attorney. Reading this article is not intended
to create an attorney-client relationship. For personal legal advice,
please consult an attorney of your choice. Because of the possible unanticipated
changes in industry regulations and applicable state and federal laws,
the authors and creators and any and all persons or entities involved
in any way in the preparation of this article disclaim all responsibility
for the legal effects or consequences of the interpretation of the information
provided.
A company can conduct
a private offering through a non-public limited offering, either under
Section 4(2) of the Securities Act of 1933 or Regulation D (under either
Rule 505 or Rule 506). To ensure that an offering is "non-public"
and can therefore qualify for Section 4(2) or Regulation D, a company
may not engage in any "general solicitation or advertising."
An offering document
in a private offering is called a "private placement memorandum"
or an "offering circular" - not a "prospectus."
A broker who brings the issuer and buyers together in a private placement
is called the "placement agent" - not an underwriter. Private
offerings are conducted on a "best efforts," rather than on
a "firm commitment" basis.
Under Rule 505
up to $5 million worth of securities can be sold to an unlimited number
of "accredited investors" as well as 35 other investors as
long as the investment is suitable for these other investors. Audited
financial statements are required if non-accredited investors are included
in the offering.
Under Rule 506
an unlimited amount of securities can be sold to an unlimited number
of "accredited investors" and 35 sophisticated investors -
audited financial statements are required if sophisticated investors
are included in the offering. Federal securities laws preempt the ability
of states to require registration of Rule 506 offerings. The preemption
has made Rule 506 offerings more popular it was enacted by Congress
in 1996.
General solicitation
or advertising can be defined as any information generally available
or widely distributed to promote the sale of a security. The SEC has
provided guidance as to what activities a company or its placement agent
can undertake in connection with an online private offering without
violating the general solicitation restrictions.
An "accredited
investor" is an investor with a net worth of $1 million - or income
of $200K (or $300K for couples, if one spouse cannot meet the $200k
threshold) in each of the last two years. Whereas a „sophisticated
investor‰ is an investor whom a company reasonably believes has
adequate knowledge and experience in financial and business matters.
Laura Anthony
is the founding partner of Legal & Compliance, LLC, a corporate
and securities law firm specializing in securities & regulatory
matters, business transactions, commercial litigation and entity formation.
She is also a member the NASD Dispute Resolution Board of Arbitrators
and can be reached at 800-341-2684; by e-mail at LauraAnthonyPA@aol.com
or contacted through the company’s web sites http://www.LegalAndCompliance.com
and http://www.MyWebLawyer.com.
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Laura
Anthony, Founding Partner
e-mail: lanthony@legalandcompliance.com
|
800-341-2684
fax: 561-514-0832 |
Legal
& Compliance, LLC
330 Clematis Street, Ste. 217
West Palm Beach, FL 33401 |
Legal
& Compliance, LLC
940 Lincoln Road, Ste. 319
Miami Beach, FL 33139 |
