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

The Definition of “Accredited Investor” and Why It Matters

The definition of accredited investor is a topic we’ve touched on briefly in several posts throughout the years, but today’s post dives specifically into the definition of “accredited investor” as defined in Rule 501 of Regulation D of the Securities Act of 1933. We’ll also point out why it’s important for you to understand who is considered an accredited investor.

Definition under Rule 501

The SEC states that the definition of accredited investor is “intended to encompass those persons whose financial sophistication and ability to sustain the risk of loss of investment or ability to fend for themselves render the protections of the Securities Act’s registration process unnecessary.” The definition of accredited investor under Rule 501 includes several types of individuals and...

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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

Hedge Fund Accredited Investors

We are continuing our series on understanding hedge funds; we will be discussing the definition of “accredited investors” and why it is important to your hedge fund.

As a brief primer, you should know that all hedge funds considering a securities offering must comply with federal and state securities laws. The Securities Act of 1933 and 1934 (“Acts”) were put in place to protect investors after the market crashed in 1929, and prior to this point in time, securities were chiefly governed by state law (which still applies in may situations). The two main objectives of the Acts were: 1) to require that investors receive significant (or “material”) information concerning securities being offered for public sale; and 2) to prohibit deceit, misrepresentations, and other fraud in...

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Corporate Finance & Securities

New Law to Ease Restrictions on Resale of Private Stock?

The US House of Representatives approved a bill, which if passed by the Senate and signed into law by the President, could make it easier for people to resell private stock. If you’re lucky enough to be an investor in Airbnb, Uber, or some other startup that took off but hasn’t yet gone through an IPO, how do you turn your private stock into cash? It can be tougher than you might think. As a general rule, every offer and sale of a security must be registered or exempt from state and federal securities registration requirements. This includes the resale of private securities, meaning if you have shares of Airbnb or Uber, you have to make sure you’re not violating state or...

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