Federal Tax Due Dates
November 30th, 2007
A private placement offering memorandum is developed in order to carefully present the full risks and terms of an investment offer in a private company. The federal regulations regarding a private placement are laid out in various laws and acts which are well-documented on the internet. However, it is a mistake to proceed in creating your memorandum on this information alone. Blue sky laws (state laws regulating the sale of securities), must be consulted for the state you are incorporated in as well as states you will be selling the securities in.
State Power
The fact that the federal securities regulator, the SEC (Securities and Exchange Commission), exists does not preclude the states from regulating securities as well. For the most part, states focus their security regulation on the power to investigate and prosecute businesses for securities fraud. To avoid actual fraud and the suspicion of fraud as much as possible, a private placement memorandum must carefully and clearly disclose all of the risks associated with the offering.
Complicating the Process
The offering must be clearly exempted from registration by the blue sky laws, which may be more restrictive than the federal exemptions. About forty states model their securities law on the Uniform Securities Act of 1956, but the interpretation of these laws can vary from state to state. Even if full registration is not required, there are generally state forms (like the federal Form D) which must be filed.
The upside of the type of disclosures which must be made under blue sky laws is that meeting them will make your offering more transparent, better protecting your business from security fraud claims and perhaps even reducing the time involved for investor’s due diligence.
Conclusion
The effect of the complicated combination of federal and state laws affecting private placements is that experienced legal counsel must be obtained by any business hoping to raise equity capital this way.
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