Business Startup

Incorporating in Washington Versus Delaware: What’s Best for Your Startup?

One of the first steps when forming a company is to decide which state is best to “register” your company. Today’s post highlights some of the reasons why you may want to considering incorporating in Washington versus Delaware.

I heard Delaware was the best state to incorporate my company, is that true?

It is true that Delaware has a specialized court that handles corporate disputes (the “Court of Chancery”) and is recognized as the nation’s preeminent forum for determining internal corporate and other business disputes. Delaware also has friendly corporate statutes and a well-developed, widely understood, and closely followed body of corporate law. But Washington state also offers advantages unmatched by Delaware (and many other states).

Two of these advantages are the simple incorporation...

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Corporate Finance & Securities

Electronic Filing Depository

The most common method companies use to raise private capital requires filing notices with each state in which you have an investor. To streamline the process of filing these notices, the North American Securities Administrators Association, Inc. (“NASAA”) created the Electronic Filing Depository (“EFD”).

Who does the EFD help?

The general rule in the United States is that, unless you have an exemption, in order to sell stock in your company, you need to register your stock offering with the SEC. Stock registrations are so expensive and time-intensive that they’re not feasible for most all small companies. As we’ve discussed before, Rule 506 of Regulation D is a “safe harbor” for the private offering exemption of Section 4(a)(2) of the Securities Act....

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Corporate Finance & Securities

Investment Club: Securities Laws

Raising capital is a costly endeavor and it requires compliance with securities laws. But people who want to pool their funds to help businesses grow have some options to avoid being subject to more restrictive securities requirements. One option is to put together an investment club.

What is an investment club?

Investment clubs are groups of people who pool their money together to make investments. Members of investments clubs study different types of investments and then the group decides to buy or sell based on a majority vote of the members. The meetings of members may be educational and each member must actively participate in investment decisions. Often, investment clubs are set up as partnerships.

What’s the role of the SEC?

Investment clubs...

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Corporate Finance & Securities

SEC Form D Amendments

When a company decides to raise capital, the company must file Form D giving notice of an exempt offering of securities with the Securities and Exchange Commission. Commission rules require the notice to be filed by companies and funds that have sold securities without registration under the Securities Act of 1933 in an offering based on a claim of exemption under Rule 504, 505 or 506 of Regulation D or Section 4(5) of that statute.

Companies and funds must file their Form D amendments with the SEC online using the SEC’s EDGAR (electronic gathering, analysis and retrieval) system. One question that often arises is this: when is a person or company required to file Form D amendments?

Form D Amendments Filing

A Form D filer should...

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Corporate Finance & Securities

When is a loan subject to securities regulations?


What is a security? Securities are contracts for an interest in a company, sometimes called an “investment contract.” A typical example of a security transaction is the sale of company stock in exchange for cash. The SEC’s definition of “security” includes a 30-item list that stocks, notes, bonds, and investment contracts, among others. We recently discussed the Howey case, which provides the test courts use when determining whether something is an investment contract. Today’s post looks into the circumstances under which a note or loan would fall within the SEC’s definition of a security.

To start: Why does it matter if something’s a security? Securities are extensively regulated because of the real risk that individuals and the companies they control could swindle unwitting...

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Corporate Finance & Securities

Raising Capital from Foreign Investors—Regulation S

If you’re a founder of a U.S. company thinking about raising capital from foreign investors, chances are good that you’ll want to utilize Regulation S.

There’s a general rule in the United States that if you want to sell stock in your business, you have to register the stock offering with the SEC. The registration process is cost-prohibitive for startups. Luckily, there are a number of commonly used exemptions. If you’re offering stock to US residents, you’ll likely be relying on a Regulation D exemption like Rule 506. Regulation S is a commonly used exemption for US companies that want to sell their stock to foreign investors.

There are two key parts to the Regulation S exemption:

The sale of securities must be an offshore transaction. There...

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Business Startup

The 5 C’s of Business Lending

Nearly every business will at some point need to obtain financing to start or grow. While many startups and other businesses will look for investors to fund their business by means of equity investment, most businesses will take on debt either instead of or in addition to investment. The “5 C’s” of business lending are five key elements that describe what a borrower should have in order to obtain a loan with the best rates possible. Most lenders rely on the 5 C’s to make their lending decisions. Here is what your banker wants to know about you before they lend to you:

Character The owner’s business character will be based primarily upon the principal’s personal credit report. Banks rely on the...

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Business Startup

Entrepreneur Access To Capital Act Passes House

On November 3rd, the House passed the Entrepreneur Access to Capital Act with overwhelming approval: 407-17. This Act would enable businesses to raise capital through crowd funding. Crowd funding is the contribution of small equity investments from many individuals.

Currently, federal and state laws governing the sales of securities restrict public solicitation of investors and limit fund-raising to sophisticated investors, or require a registration process that is cost-prohibitive for many entrepreneurs.

The Act restricts individual investments to $10,000 or ten percent of their annual income, whichever is lower. Businesses can raise up to $1 million dollars using this method without registering their securities unless they provide audited financial statements, in which case they can raise up to $2 million.

The Act includes a...

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