Very often a less expensive, Private Memorandum will do the work of larger scale offerings without sacrificing the amount of proceeds desired.
Comparative Security Offerings |
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SCOR | The
appropriate direct public offering vehicle may not always be the obvious
choice.
Very often a less expensive, Private Memorandum will do the work of larger scale offerings without sacrificing the amount of proceeds desired.
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| Regulation A | ||||
| Regulation D - Rules 501-506 | ||||
| California Corporations Code 25102(n) | ||||
| SCOR Small Corporate Offering Registration (SCOR) is designed to help small companies with capitalization by allowing the issuing of stock directly to the public. This is called a Direct Public Offering or DPO since the offering is usually not underwritten by an Investment Banker. A SCOR offering is an ideal format for executing an Internet DPO. The DPO candidate may raise as much as $1 million within a 12 month period (minimum stock price of $5). Typically, the prospective DPO candidate will set a minimum (proceeds) amount of capital to be raised to ensure that sufficient funds will be available for expansion or development before any of the funds are accessible for company use. While a SCOR offering does not warrant the substantial costs usually associated with larger public offerings, it is a prime candidate for an Internet DPO which typically costs much less and provides a small company with an effective means by which to raise capital. The filing, which consists of a 30-page form called Form U-7, (see DPO Group's Completed Form U-7 example) is exempted from the filing provisions of the SEC Act of 1933 which means that the DPO candidate will not have to file a registration statement with the SEC; however, as with any public company, compliance with antifraud and personal liability provisions of the SEC Act of 1933 is a requirement.
SEC Filing DPO candidates are required to complete and file a FORM U-7
Instructions which has been designed for easy completion;
nevertheless, it will most likely require expert assistance. Further, 2 years of audited
financial statements are required and should be included with the Form U-7 filing. "Blue Sky" State Filing Both federal and state levels of regulations must be complied within a SCOR-based DPO as well as with any IPO. State regulations are called Blue Sky laws. Blue Sky laws were designed to protect investors from "unscrupulous" issuers of stock. Since its inception in 1987, SCOR filings have been adopted in 45 states. Some states may require minimum amounts to be raised before the DPO candidate may access the raised capital.
DPO candidates that enjoy a large customer base or related affinity group are well positioned to implement a SCOR offering.
SB-1 is the Federal form for offerings and sales of securities in which the maximum offering is $10 million dollars. The offering is available to DPO candidates that have no more than $25 million in sales or $25 million in publicly held stock. The type of disclosure required is the Model A, Form U-7 or Model B under Regulation A. The offering is an SEC registration and involves a detailed Prospectus. Blue Sky State filings are required within any state stock subscriptions are sold. The SB-1 filing requires audited financials, the last fiscal year's balance sheet and the last 2 fiscal year's income statements plus unaudited interim financials.
SB-2 is the Federal form for offerings and sales of securities in which the maximum offering is unlimited but, as a practical matter, set at a $25 million dollar limit. The offering is available to DPO candidates that have no more than $25 million in sales or $25 million in publicly held stock. The SEC review is conducted centrally in Washington and must be filed electronically through the SEC's EDGAR. The offering is considered a full-blown registration and involves a detailed Prospectus. Blue Sky State filings are required within any state in which stock subscriptions are sold. The SB-2 filing requires audited financials, the last fiscal year's balance sheet balance sheet and the last 2 fiscal year's income statements plus unaudited interim financials.
Like SCOR - "Reg A" is Internet Ready Regulation A is designed to assist small companies in their capitalization by issuing stock directly to the public. This process is called a Direct Public Offering since the offering is usually not underwritten by an Investment Banker. A Regulation A filing is an ideal way to raise capital as an Internet DPO. A DPO Candidate may raise as much as $5 million within a 12-month period. Typically, the prospective DPO candidate will set a minimum amount of capital to be raised to ensure that sufficient funds will be available for growth and development before any of the funds are accessible for company use. Regulation A can provide a small company with an effective means by which to raise capital. The filing is exempted from the filing provisions of the SEC Act of 1933 which means that the DPO candidate will not have to file a registration statement with the SEC although, as with any public company, compliance with antifraud and personal liability provisions of the SEC Act of 1933 is a requirement.
SEC Filing DPO candidates are still required to make the same
disclosures as if they had filed a registration statement. Reg A offerings require that
the DPO candidate file an offering circular, otherwise known as prospectus, with the SEC
which discloses potential risk factors, financial reports, use of the proceeds,
backgrounds of the officers and directors, company history, marketing plans as well as
products and services. The SEC does not currently require audited financial statements
unless the Candidate had pre-existing ones at which point they must be included in the
offering circular. "Blue Sky" State Filing Both federal and state levels of regulations must
be complied within a DPO as well as an IPO. State regulations are called "Blue
Sky" laws. Blue Sky laws were designed to protect investors from
"unscrupulous" issuers of stock. Regulation A filings are not exempt from state
Blue Sky securities laws and some states require that the DPO candidate produce 2 years
audited financial statements. Filing requirements as well as fees can differ from state to
state. Qualified Candidates The DPO candidate must not be a reporting company; must have developed a comprehensive business plan; may not be an Oil and Gas company or Investment company; and the Directors, Officers, controlling shareholders, and underwriters must not have been suspended from a securities association; convicted, during the last 10 years, of a securities violation; or subject to an injunction because of securities violations. Important to note is that the SEC reserves the right to waive certain circumstances if there are grounds for acceptance.
A unique feature of a Regulation A is the "Test The Waters" component. As the name implies, a DPO candidate can test the interest of investors before investing time and financial resources of preparing a DPO. CBC assists with a "Test The Waters" strategy by the use of on-line surveys and graphical meters to help ensure SEC compliance is followed, including full disclosure that the information is not a solicitation to sale but rather an indication of interest.
The Private Placement Simply stated, its against the law to sell stock unless you are licensed to do so or can qualify for an exemption from the SEC rules. For instance, section 5 of the 1933 Act clearly states that it is unlawful for any person, directly or indirectly to sell a security unless a registration statement has been filed, or to sell a security or deliver a security after the sale unless a registration statement is in effect. The 1933 Act does, however, contain some exemptions, but they fall short of really helping small businesses. It was this concern that prompted Regulation D, better known as Reg D, which became effective April 15, 1982. Its not just another exemption but rather one of the key exemptions for small business that want to raise money by selling stock. It is also considered to be a form of taking a company public without the burden and expense of a full registration with the SEC. Reg D consists of six basic rules. The first three are concerned with definitions, conditions, and notification. Rule 501 covers the definitions of the various terms used in the rules. Rule 502 sets forth the conditions, limitations, and information requirements for the exemptions in rules 504, 505, and 506. Rule 503 contains the SEC notification requirements. The last three rules deal with the specifics of raising money. Rule 504 generally pertains to securities sales up to $1 million. Rule 505 applies to offerings from $1 million to $5 million. Rule 506 is for securities offerings exceeding $5 million. Regulation D contains the kind of exemptions that many small business persons have been looking for. These exemptions can easily be used in private or limited offerings. Thus the Reg D private placement document, better known as the Private Placement Memorandum, has been considered to be one of the most workable exemptions for small offerings. While Reg D offerings can provide a financial solution for a small business it does have limitations. There are strict limitations in general solicitation of stock sales as well as suitability standards for investors. These limitations drastically reduce the number of private placements which are successful. It is the opinion of many that a Regulation A offering has a higher probability of success based on a more dynamic SEC exemption rules. In the event that you wish to proceed with a Reg D Private Placement Memorandum, CBC Communications Corp. can assist you with this filing and document production.
California Corporations Code Section 25102(n) California companies enjoy a powerful approach to raising capital Under a new law. Companies can raise capital by advertising to the general public while maintaining the status of a private offering. This was accomplished with the passage of Section 25102(n) of the California Corporate Securities Law and a coordinated federal exemption, Regulation CE, Rule 1001 (the "CE" exemption), effective June 1996. The new exemptions seem to offer companies the best of all worlds. They can advertise like an Initial Public Offering ("IPO") but without all the restrictions. The Securities and Exchange Commission
("SEC") Regulation CE works in conjunction with Section 25102(n) to allow
California companies (or those with certain minimum contacts or activities in California)
to raise up to $5,000,000 through a public solicitation. Under these coordinated
exemptions, companies do not have to go through the expensive and lengthy process of
registering the securities with the SEC or under the California "blue sky" laws.
As a result, California companies are poised to raise capital faster and at less expense. The following are highlights of the
coordinated federal CE and California Section 25102(n) exemptions:
NOTE: The above information has been published with the understanding that DPO Group is not engaging in legal or financial advice. If you are seeking such advice, then the services of a competent professional attorney or financial consultant should be sought. |
