Solicitation Rule Changes – Part II

The most difficult type of accredited investor to verify is the natural person who meets the income or asset requirements. As discussed in a prior post, an accredited investor includes a person who has a net worth that exceeds $1,000,000.00 (without taking into account the value of a primary residence), or an individual who made $200,000.00 in the prior two years, or joint income with a spouse exceeding $300,000.00 in the prior two year, with a reasonably expectation of making […]

Read More

Solicitation Rule Changes – Part I

As noted in a prior post, general solicitation of investors for private investment has historically been prohibited under SEC rules. This has meant that a party seeking investment could not solicit the public to find investors through such means as websites, radio or television ads, articles in trade publications or magazines, and so on. Accordingly, parties seeking investment have always had to maintain a careful watch over how they look for, and find, investors.

In 2012, Congress passed, and […]

Read More

Resale Limitations for Securities from Private Placements

Another limitation under the SEC rules for a private placement which will be under the safe harbor provisions is that the issuer must take reasonable care to make sure the securities are not resold without registration or the application of an exemption. Specifically, this means the securities should not be issued to an underwriter, that is, someone who buys the securities to sell them again. Generally, this can be accomplished with a reasonable inquiry, a disclosure of the restriction on […]

Read More

What is an Accredited Investor for Private Placements?

Accredited investors are specific institutions and individuals defined by the SEC rules who fall within the definitions at the time of the investment. Accredited investors include directors, executive officers and general partners of the issuer or an entity in which all of the equity owners are accredited investors. The definition also includes any individual who has a net worth of, including a spouse, that exceeds $1,000,000.00 but without taking into account the value of a primary residence, or an individual […]

Read More

SEC Rules Providing Safe Harbor for Private Placements: General Condition of Integration

Under the SEC rules that provide a safe harbor for certain private placements, if specific requirements are met, the offering is a private placement and exempt from registration requirements. The rules provide general conditions that must be met.

The first is integration. The rules provides that sales more than six months before the start of the exempt offering, and six months after the completion of the offering will not be counted as a part of the offering at issue. This generally […]

Read More

Integration Considerations and Number of Investors for a Private Placement

Another consideration as to whether the offering is public or private is whether the offering is part of larger offering being made, or to be made. This is called integration. In short, an issuer cannot skirt the securities laws by breaking up essentially the same offering into smaller parts done over time. Usually, unless a business is involved in making multiple offerings, the question of integration is unlikely to come up.

Of course, the more people the issuance is offered […]

Read More

The Requirement of Access to Information in Private Placements

The requirement of access to information varies depending on the circumstances. Some courts have held that this can be done by voluntary disclosure of information or effective access to such information because of employment, family relationship, or economic bargaining power. Other courts have suggested that voluntary furnishing of information does not substitute for access.

Regardless, the type of information that must be available to an investor is similar to what would be made available by registration. Such documentation could include […]

Read More

Sophistication of Investors for Private Placements

Sophistication is a difficult standard to nail down. The ability to fend for one’s self is ambiguous. The idea of the issue is whether the investor can understand and evaluate the nature of the risk based on the information they are provided. This may mean they must have exceptional business experience. However, previous investment experience is not generally sufficient by itself, and neither is formal education or a high income.

In requiring sophistication in the SEC rules, the SEC has […]

Read More

The General Factors for Determining a Private Placement

In general, the determination of whether an offering is a private placement involves consideration of four factors as follows:

The number of investors and their relationship to one another and the issuer;
The number of units involved;
The size of the offering; and,
The manner of offering.


Over time, the emphasis of the consideration of factors has shifted from the number of investors to their sophistication and access to information. The idea is that the securities laws are designed to prevent fraud and unwary […]

Read More

Business Financing: The Art and Complexity of Valuations, Particularly Start-Up Valuations

For the last couple of weeks, we have been looking at business finance issues, and specifically, start-up business finance issues.  We started with a summary of finance options for business – sales, debt, or equity investment.  We then tied into the #ECOops team discussion at Entrepreneur Community Online and looked at the top five investor issues when your target market is investors.  Today, we will survey issue of business valuation with an emphasis on start-up valuation.  These topics are partly […]

Read More