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A company that sells stock, SAFEs or convertible notes to raise money is selling securities, and LLC interests sold to investors who won't help run the business often are too. Unless the offering is registered with the SEC, it must fit an exemption under federal law and comply with the securities laws of each state where the investors live.
We help companies pick the exemption, prepare the documents and make the filings, for raises from SAFE and note rounds to priced equity rounds. A raise that missed its exemption can expose the company to investor claims and slow the next round.
Attorney
Exemptions We Use
Private Placements
The basic federal exemption for sales not involving a public offering, often used with a few sophisticated investors.
Rule 506(b)
No general solicitation, any number of accredited investors and a limited number of sophisticated non-accredited purchasers.
Rule 506(c)
Advertising is allowed, but every purchaser must be accredited and the company must take reasonable steps to verify it.
Rule 504
An exemption for smaller raises, capped in dollars, with state registration or a state exemption still required.
Choosing an Exemption
Most private raises rely on Rule 506 of Regulation D. A Rule 506(b) offering can't be advertised, and any non-accredited investors must receive disclosure that includes financial statements, so many companies sell only to accredited investors. A Rule 506(c) offering can be advertised, but the company must verify each investor's status, such as by reviewing tax returns or getting written confirmation from a CPA, attorney, registered investment adviser or broker-dealer.
Federal law exempts Rule 506 offerings from state registration, leaving the states with notice filings and fees. Regulation Crowdfunding allows smaller raises, up to an annual dollar limit, through a registered funding portal or broker-dealer, and Regulation S covers offers and sales made outside the United States.
Documents and Filings
For a round limited to accredited investors, the core documents are a subscription agreement and an investor questionnaire. No rule requires a private placement memorandum in that kind of round, but the antifraud rules apply to every private offering, and a written disclosure document records what investors were told. Form D is filed through the SEC's EDGAR system, and a first-time filer must apply for EDGAR access before it can file, so we start early.
How We Handle a Private Raise
Choose the Exemption
We match the exemption to how the company finds investors, who they are and where they live.
Bad Actor Check
Directors, officers, large owners and paid solicitors complete questionnaires before the raise.
Offering Documents
A subscription agreement, investor questionnaire and, when needed, a private placement memorandum.
Investor Eligibility
We review accreditation responses and, under Rule 506(c), the company's verification.
Make the Filings
Form D on a short deadline after the first sale, plus notice filings in the investors' states, including Texas.
Frequently Asked Questions
Have a question that isn't answered here? Call us at (817) 631-8842 or send a message.
Ask a QuestionWho counts as an accredited investor?
An individual generally qualifies by meeting the SEC's net worth or income test, alone or together with a spouse or spousal equivalent, with a primary residence left out of net worth. Holders in good standing of certain securities licenses also qualify, as do the issuer's directors and executive officers. The SEC can change these standards, so we check the current rule for each raise.
What does Texas require for a Rule 506 offering?
Texas requires a copy of the Form D, filed with the Texas State Securities Board through the Electronic Filing Depository, within a short period after the first sale in Texas. A filing fee applies, and amendments filed with the SEC must also be filed in Texas.
Can we pay someone a commission for bringing in investors?
A person paid based on the money raised may need to be registered as a broker-dealer, and paying an unregistered finder can lead to rescission claims, regulatory action and trouble in later raises. Texas has a limited registration for finders, with strict limits on what they may do.
What is the bad actor rule?
The bad actor rule bars a company from relying on Rule 506 if it or certain related people, such as directors, executive officers, large owners and paid solicitors, have specified securities-related convictions, orders or sanctions within set look-back periods. A company that shows it did not know, and with reasonable care could not have known, keeps the exemption. Rule 504 and Regulation Crowdfunding have similar rules.
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