Investor Documents

Aunt Mary may be willing to invest in your company, but Uncle Sam (the government) wants his input to be heard. When you give Aunt Mary a piece of your company in exchange for her investment, or if she lends your business money and you make certain promises to her to pay her back, your company may have issued her a security.

Generally, all securities offered in the United States must be registered with the Securities Exchange Commission (SEC) unless they are exempted from registration. Most companies utilize Section 4(a)(2) of the Securities Act, also known as the “private placement exemption,” and more specifically “Rule 506 of Regulation D,” which is provided as a “safe harbor” to the otherwise ambiguous standards of Section 4(a)(2). Rule 506 allows companies to sell securities to a certain profile of investors, which could include Aunt Mary, through a process known as a “private placement offering.”

When a private placement offering is made to a “non-accredited” investor, it is necessary to provide a Private Placement Memorandum, which sets explains the investment and risks of investing in detail. Other documents such as subscription agreements will also need to be prepared before funds can actually be raised.

When not properly navigated, an investor may seek to renege on an investment. If an investment is subject to rescission, the company, and its principals personally, may be responsible for repayment of money invested. Aunt Mary may be happy to invest today, but who knows what might happen tomorrow?

Apart from the Private Placement Memorandum, there are other documents that may be required to finance your company. These contracts may include stock purchase agreements, and convertible notes and debentures.

Our law firm can help you prepare the documents you need to fund your business. Contact us today to discuss how we can help.

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