Corporate Finance & Securities

Integration in Securities Offerings

When companies raise money from investors, the transaction will be governed by securities laws. These securities laws have complex requirements that often “trip up” companies unfamiliar with the rules and their application. In today’s post, we tackle one of those areas of securities and startup law where companies often trip up: integration.

What is “Integration” in the context of a securities offering?

To better understand integration, you’ll need to first understand what a “securities offering” is. In very simple terms, a securities offering is a transaction where a company is offering to sell a security in exchange for (in most cases) cash. You can check out a discussion of the more precise definition of a security in our prior post.

Integration is a term in...

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Corporate Finance & Securities

New Law Makes Resale of Private Stock Easier

Congress recently passed a new securities law exemption (Section 4(a)(7) of the Securities Act of 1933) that eases the limitations and restrictions surrounding the resale of private stock.  Prior to the new law, there were several regulatory hurdles that made the resale of private stock in a company difficult. As we’ve highlighted in prior posts, securities regulations require any sale of stock to be registered with the SEC (a time-consuming, expensive process), unless the sale is “exempt”—which means that the sale falls within one of the exemptions provided for in the securities regulations. (Check out one of our prior posts on securities exemptions and Rule 144 for more background on the regulations specifically surrounding selling stock in private companies as they applied...

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Corporate Finance & Securities

Amendment to Stock Legend Guidance for Restricted Securities

Recently, the Securities Division of Washington’s Department of Financial Institutions  adopted amendments to WAC 460-44A-502 to provide stock legend guidance for restricted securities.

The adopted amendments remove a reference to an outdated North American Securities Administrators Association (“NASAA”) guideline and instead provide the suggested language for the legends in the text itself. A “legend” on a stock certificate is a statement noting restrictions on the transfer of the stock, often due to SEC and state requirements for unregistered securities.

The new suggested legend language in Washington state is as follows:

(d) A written disclosure or legend will be deemed to comply with the provisions of WAC 460-44A-502 (4)(b) or (c) if it states:

“(i) These securities have not been registered under the Securities Act of...

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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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