Securities and Raising Capital

We regularly advise clients on how to properly raise money from others for their business or investment activities. Compliance with the securities law is absolutely crucial when raising money from others, as personal liability and criminal penalties are offered to those who fail to follow the law.

Besides registering your company and its stock on the NYSE or NASDAQ, there are essentially three legal classifications and ways to raise money. First, you may partner with others in a business or investment where you have a ”cash” partner or partners. These partners invest capital, but are also involved in your business or investment and vote on matters of the business. Having too many partners or having “silent” partners may cause problems under the securities law. Thus, it is important to get advice prior to entering into this relationship and to properly document it for your benefit and for the benefit of your partner(s).

Second, you may raise money from others who are lenders for real estate projects, so long as their investment is fully secured by a deed of trust in a first lien position. The laws vary by state in this area, but typically provide securities law exemptions for investments in real property that are properly secured.

Third, you may raise money from others in the form of private offerings, pursuant to Regulation D of the Securities and Exchange Commission. We have assisted numerous clients with private offerings (aka PPM) and they allow you to raise large sums of money from numerous investors without having to give them voting rights. You may retain control of the investment, but must do so pursuant to the SEC’s rules and regulations. A private offering involves numerous documents and filings with the SEC and State Securities Commissions, but provides an excellent mechanism to raise large sums of money. Private offerings must remain “private” in nature and you cannot make what are known as general solicitations to the public to attract investors.