Securities Law

Seed Capital and Subsequent Funding Rounds

Every business, from a sole proprietorship to corporations of all market sizes, needs capital. Most capital comes from a single person, or maybe a few partners, funding a new business.  Jonathan represents clients in family and friends capital raises, seed capital from sophisticated investors, and subsequent funding rounds, from private placements to offerings registered with the Securities and Exchange Commission. No matter what kind of funding is necessary, he helps structure financing terms, drafts offering disclosure materials and appropriate agreements between the company and its investors, and proceeds expeditiously to close the funding.

Private Placements

Private placements of securities generally refers to securities offerings that are made without being registered with the Securities and Exchange Commission because of an exemption from the registration requirements of the Securities Act of 1933. While some securities themselves are exempt from registration, most securities offered in private placement offerings are made through transactional exemptions. The most widely-used exemption is Securities Act Section 4(a)(2), which exempts from registration transactions by issuers not involving a public offering. Like many aspects of securities law, the statute does not give much insight into what those plain words mean. Court cases have interpreted that simple language since its appearance in 1933. Today, some of that language and other exemptions from the Securities Act registration requirements appear in SEC Regulation D, and it is on that regulations that the majority of private placements to individual rely. For some private offerings the SEC requirements are fairly clear, but even in those instances there can be widely diverse approaches to how to meet offering disclosure requirements. Navigating through thee statutes and regulations requires a careful and knowledgeable professional. Issues such as the form of any offering material have to be considered carefully.

Public Offerings

Some offerings have to be made through a registration statement filed with, and declared effective by, the SEC. The registration process for most small companies is lengthy and expensive, but cannot be avoided for a number of reasons. Among those is the salability of an offering, which starts with the avoidance by most broker-dealers to sell private placement securities ( exceptions being made frequently for sales to intuitional investors). From the choice of registration form (most are done on SEC Form S-1), to drafting the registration statement in compliance with SEC requirements, working with auditors, communicating with selling agents, responding to SEC comment letters and telephone conferences with SEC staff, issuers need a competent and experienced SEC counsel.

Public Company Reporting Requirements

When a company’s registration statement is declared effective, the company becomes subject to SEC reporting requirements. These include at a minimum Current Reports on Form 8-K, Quarterly Reports on Form 10-Q, and Annual reports on Form 10-K. Form 8-K presents its own challenges, particularly because it enumerates particular events (for example, the entry into a material definitive agreement), that have to be filed on 8-K within a specified number of days of their occurrence. The interpretation of 8-K language is often difficult and requires substantial experience and judgment. Periodic reports are more extensive and, as with Form 8-K, require judgment as well as the ability to draft concisely and clearly. These reports not only have to meet SEC requirements, they have to be drafted professionally and in a manner that as a whole reflects well on the reporting company. An issuer having a class of securities registered under the Securities Exchange Act of 1934 should coordinate with its officers, directors, and principal shareholders filings on Forms 3, 4, and 5 and, as appropriate, a filing on Schedule 13D for persons acquiring a 5% or greater beneficial ownership interest in a class of voting securities.

State Securities Law Compliance, Resale of Restricted Securities, and Certain Other Securities Matters

Companies issuing securities need securities counsel guidance with other matters, including the following:

  • Whether an offering is private or public (that is, registered), the offering has to be reviewed for state securities law compliance. In most instances, some state filing is required, whether a notice filing for a private offering or a state registration coordinated with a federal registration of the sale of securities on a public basis.
  • Resales of affiliate (control) securities and resales of restricted securities (in general, those issued privately) have to meet the requirements of SEC Rule 144. The requirements of Rule 144, as in most SEC statutes and regulations, are complex, difficult to navigate, and require experienced securities counsel.
  • Typically, an issuer and, if there is one, the issuer’s transfer agent, require an opinion of counsel in support of a resale of restricted securities compliance with Rule 144 or other applicable law with respect to restricted securities resales. The opinions of counsel must conclude that a resale complies with Rule 144 or other applicable law permitting resales without registration. Resale opinions should only be given after careful examination of the facts and circumstances of a resale, as well as compliance with governing law.

Make Shepard PLLC, a member of your business team.  Get the legal help you need to organize your company, help you successfully complete corporate and securities transactions key to capitalizing and growing your business,  and guide you in mergers and acquisitions, corporate governance, shareholder relations,  SEC reporting compliance, and more. Let’s begin together. Call Us Now!

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