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Laws For Raising Capital

SEC Regulation D, Rule 504
Rule 504 of SEC Regulation D (17 CFR 230.504) exempts from federal registration offerings of up to $1 million to be raised in a 12 month period.
This exemption can work for a offering in two ways:
(1) If the entrepreneur chooses to make the offering available only to accredited investors by limiting the offering to states where the Model Accredited Investor Exemption (MAIE) or a similar state exemption has been adopted, then the securities offering is not required to be registered with those states. This is known as the "Model Short Form" Option, or;
(2) If the entrepreneur chooses to offer to the general public (or to accredited investors residing in a state(s) that has not adopted the Accredited Investor Exemption.
The offering must be registered with every state where the issuer wishes to sell the securities.Any sale of securities under Regulation D, the Entrepreneur must file a Form D with the SEC no later than 15 days after the first sale has been completed. In addition, most states will also require the filing of the Form D for sales made in those states. Many states may also require a "Consent to Service of Process" to be filed and others states may require additional forms to be filed. Please check with each state regulator for the specific filing requirements. 
New Amedments To regulation 504 D 4/7/99 
SEC Rule 1001 
SEC Rule 1001 (17 CFR 230.1001) recognizes state exemptions that are based upon a "qualified purchaser" exemption. Companies may list their Rule 1001 offerings on business partners but it should be noted that the definition of a "qualified purchaser" is different than an "accredited investor." Currently, only California has adopted a qualified purchaser exemption that qualifies under SEC Rule 1001. California companies or companies with business in California are exempt from federal and state registration of offerings of up to $5 million if the sales are made only to "qualified purchasers" as defined by paragraph (n) of section 25102 of the California Corporation Code.
SEC Regulation A
SEC Regulation A (17 CFR 230.251) exempts from federal registration offerings of up to $5 million to be raised in a 12 month period. To list on business partners utilizing the Regulation A offering exemption, the issuer must file an offering statement with the SEC and with states where the issuer wishes to sell securities. Once the offering has been reviewed and deemed qualified by the SEC and relevant states, the offering can also be activated on the Company Database for potential investors to view. is designed to work with Model A (of Part II, the disclosure document) of Form 1-A (which is identical to the Form U-7).
SEC Regulation D, Rules 505 and 506
Generally, securities regulators regard securities offerings on the Internet to be public offerings engaging in a general solicitation. Private placement offerings, such as SEC Regulation D, Rules 505 and 506, may not be listed on Business Partners (Main site)s ince general solicitation is not permitted. Business partners is designed to work with NASAA's Model Accredited Investor Exemption. This exemption combines the best of both public and private offerings because under the exemption, small companies may generally solicit accredited investors without having to register the securities offerings with the state(s). Business Partners will soon offer a private placement library to display tombstone ads for state and federal registered companies only. 
The Model Accredited Investor Exemption
The North American Securities Administrators Association (NASAA), the association of state securities regulators, drafted and approved a "Model Accredited Investor Exemption" during its 1997 Spring Conference. When adopted by individual states, the Model Exemption provides a new exemption from registration of securities at the state level for small companies that offer and sell their securities exclusively to "accredited investors." The Model Exemption is based on the premise that accredited investors are capable of undertaking their own due diligence and gauging the risk factors before making any investments in small companies. At the federal level, the Model Exemption works with the SEC Regulation D, Rule 504, to provide an exemption for sales under $1 million.
Background of the Model Accredited Investor Exemption
One of the biggest concerns for small, growing companies is access to equity capital.
The two traditional ways of raising equity capital are through registered public offerings or through private placements. If a small company does not have an identifiable affinity group to sell public shares of stock, the registration of a securities offering may be very costly and the outcome unpredictable. As for private placements, many small companies may not have an abundance of prior business relationships in order to cultivate potential investors. In response to this dilemma, state securities regulators have put together regulatory exemptions that bring together the best of both types of raising capital -- the Model Accredited Investor Exemption.
The Model Exemption is a simpler version of California's 25102(n) exemption (the "Qualified Purchaser" Exemption). The SEC in adopting Rule 1001 recognized the California exemption and permitted California companies to raise up to $5 million under the exemption. At the time the SEC adopted Rule 1001, Arizona, Missouri, Texas and Wisconsin had adopted accredited investor exemptions.
In response to the emerging exemptions, NASAA decided a model exemption would help create more uniformity for small businesses trying to sell securities to angel investors and venture capitalists. In addition, the Model Exemption will allow the states to channel money into securities law enforcement that might otherwise be spent on reviewing securities offerings. The Model Exemption was adopted at NASAA's Spring Conference in April of 1997.
Elements of the Model Accredited Investor Exemption
The Model Exemption provides for a limited general announcement to the public and permits additional information may be provided to accredited investors through an electronic database like The elements of the Model Exemption are:

  • limited general announcement that may contain a brief description of the issuer's business (25 words or less), issuer's name, address, telephone number, brief description of the securities to be sold, type, number and aggregate number of securities to be sold and the name, address, and telephone number of a contact person;
  • The appropriate legends and statements for the limited general announcements;
    • Additional information to accredited investors is permitted through an electronic database
  • The purchase of securities is for investment purposes and not with the view to or for sale in connection with a distribution of the securities (the stock is considered "restricted" stock);
  • The issuer cannot be in the development stage that either has no specific business plan or purpose or has indicated that its business plan is to engage in a merger or acquisition with an unidentified company or companies, or other entity or person.
  • Issuers are disqualification if there are any criminal convictions, enforcement actions or current judgements or decrees concerning fraud or deceit in the connection with the purchase or sale of any security by the issuer and all associated parties.

To see the complete text of the Model Exemption please refer to the "Model Accredited Investor" under t. For a list of states that have adopted the Model Exemption please click here. In addition, more information can be found at the NASAA website at
The Model Accredited Investor posting Option was created to work with the Model Exemption and similar accredited investor exemptions. Under the Model Exemption, an issuer may only provide very limited general information in the general announcement to the public. However, the Model Exemption allows an issuer to provide whatever information the issuer deems essential to be stored in an electronic database and to be view solely by accredited investors. There is no requirement on the amount of information that must be submitted to the accredited investor.
It is best to use the Form U-7 that is recognized by 49 states. The business partners Short Form requires the issuer to provide the most basic information on the company (a subset of the questions of the Form U-7) and then gives the issuer the option of attaching a Business Plan, Executive Summary or completing the rest of the Form U-7. The basic information required by business partners is the same information as is required by SEC Form D.
Model Accredited Investor Exemption Filing Requirements
The filing requirements are set out in last section of Part (I) of the Model Exemption. The issuer of securities must, within 15 days after the first sale in that particular state, file with the state commission/division:

  • a notice of transaction (generally, SEC Form D),
  • a consent to service of process (generally, NASAA's Form U-2),
  • a copy of the general announcement, and
  • the state designated fee.

Please check with each state's securities commission to find out the exact filing procedures, forms and fees to be used. A list of states that have adopted an accredited investor exemption and filing information can be found under the "What's New" section. 
Variations of State Accredited Investor Exemptions
While not all states have adopted the Model Exemption, some have existing accredited investor exemptions that are compatible with However, the filing requirements and other provisions may be different from those of NASAA's Model Exemption. For instance, issuers from Michigan are required to use only the SCOR Form (Form U-7) for disclosure. Issuers attempting to take advantage of California and Minnesota's qualified purchaser/accredited investor exemptions must be residents or have significant business dealings in those states. It cannot be stressed enough that it is imperative for an issuer to fully understand what is required to offer securities in a particular state.
It is also important to note that many states are rapidly gaining ground in the effort to adopt the Model Exemption. Up to date information on the list of states that have adopted accredited investor exemptions and their filing requirements can be found here. 
Internet Stock Offerings and
While federal and state securities laws are designed to protect investors within certain geographic boundaries, the Internet has no geographic boundaries. If a securities offering is posted to investors of a certain state on the Internet it is technically available to everyone on the Internet. A stock offering that may be in compliance with one state's laws and regulations may violate another state's laws and regulations. In response to this problem, NASAA adopted an "Internet Resolution" that attempts to develop a uniform policy concerning offers of securities on the Internet.
The resolution encourages states to take appropriate steps to exempt Internet offerings from registration where (1) the Internet offer indicates, directly or indirectly, that the securities are not being offered to the residents of a particular state; and (2) an offer is not otherwise specifically directed to any person in a state by, or on behalf of, an issuer of the securities. Because an offering listed on Business Partners may be viewed by potential investors residing in every state - even though the securities issuer may not wish to sell to residents of certain states, businesspartners recommends the issuer to prepare "Disclaimers" for the particular states in which the offering is not being made.
In addition, the NASAA Internet Resolution can be found on the NASAA website at:
Securities offerings. In addition, please refer to the North American Securities Administrators Associations' website at for additional information on state securities laws.
For information on federal securities laws, please consult the U.S. Securities and Exchange Commission's website at    

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Oct 21, 2017