Private Placement Offerings

 Regulation D Offerings The requirements under each of the following rules include the amount of money that can be raised, total number of investors who may purchase stock, and the financial sophistication of the investors. Investors are said to be “sophisticated” (also called “accredited” or “qualified”) if they have a certain net worth, income and/or experience in the purchase of stocks.)  

Rule 504 – Raise up to $1 million in a 12 month period.
Rule 505 – Raise up to $5 million in a 12 month period. This exemption limits the number of non-accredited investors to 35 but has no investor sophistication standards. Rule 505 requires disclosure similar to that required for Rule 506 offerings, under $7.5 million.
Rule 506 – No dollar limit.This exemption does not limit the number of accredited investors, but the number of non-accredited investors may not exceed 35. All non-accredited purchasers, either alone or together with a designated representative, must be sophisticated enough (i.e., have the knowledge and experience necessary) to evaluate the merits and risks of the investment. (An offering company typically determines the sophistication of its investors with a questionnaire subscription agreement.) Rule 506 requires detailed disclosure of relevant information to potential investors; the extent of disclosure depends on the dollar size of the offering. Reg. D Offering Advantages

  • Easy, fast and inexpensive to prepare.
  • No underwriting company, brokers or agents required.
  • Stocks may be sold by you and company employees.

Reg. D Disadvantages

  • Stock is non-liquid (not traded on secondary markets)
  • Soliciting and advertising for investors not allowed

CrowdFunding  – The Jobs Act 2012

The new law allows a company to use crowdfunding for seeking actual investors. It can raise up to $1 million this way. To protect investors, those with a net worth of less than $100,000 may now invest 5% of their yearly income or $2,000, whichever is higher. Wealthier types can invest up to 10% of their income.

Small Corporate Offering Registrations (SCOR) SCOR offerings are registered on a state-by-state basis with each state reviewing your offering to make certain that it meets their specific requirements. These offerings are now legal and available in over 40 states, and the rest are likely to be on board soon. Offerings are limited to $1 Million in a 12 month period SCOR permits the sale of securities to an unlimited number of investors, accredited or non-accredited. For this reason SCOR is known as a REGISTRATION BY EXEMPTION because it is basically a hybrid between a public offering and a private placement. This type of offering is often referred to as a DPO, or Direct Public Offering because the stock can be sold to the public without the use of an underwriter, agent or brokerage.

While companies filing a SCOR are subject to some requirements and an application process, SCOR securities can be resold into established secondary markets. The Pacific Stock Exchange has created special rules and a review process for SCOR securities that will hopefully improve the secondary market for these offerings. In addition, various bulletin boards have been established on the Internet for SCOR securities, adding to the potential liquidity of these investments. As the Internet grows, so should the secondary market for securities in smaller companies.



 There are several standard methods to give investors a return on their money. In equity investments, the founders have to give the company a valuation and they must propose an exit strategy for the investor. Examples of exit strategies would be: the company goes Public; the company sells out to another company for cash or public stock; or the company buys out the initial investors. 

1)     Debenture.  Funds are given to a company. An annual set interest rate is paid back to the investor and after a set period of time the company returns all the invested capital.  (A 12% 3 year Note. A $100,000 investment gets $12,000 per year and $100,000 at the end of year three.) 

2)     Equity Offering.  An investor puts in a set amount of cash and receives a set number of shares of stock. The company also sets the value of the stock and the number of shares available at the start. ($100,000 buys 100,000 shares of stock at $1.00 per share.  There are 10,000,000 shares available so, AT THE OFFERING, the investor owns 1% of the company) 

 3)    Debenture with Warrants.   Funds are given to the company for a set percent return for a set time and the investor is given the option to buy stock in the company at a later date, AT A SET PRICE. (A 12% Note for 3 years with Warrants at $1.00 per share for two years.  A $100,000 investment gets $12,000 a year, the initial $100,000 is returned after 3 thee years AND the investor has the right to buy up to 100,000 shares of stock, at $1.00/ share any time for the first two years) 

4)    Convertible Note. Funds are given to company and a set interest in paid back to the investor.  The investor has the right to keep receiving the interest and demand the return of his principal at the end of a set time or the investor can convert that principal into stock of the company.  The amount of stock the original investment can purchase may change over time. ( A 12% Convertible 3 Year Promissory Note would pay the investor of $100,000 , an interest of  $12,000 per year and $100,000 at the end of 3 years or the investor could stop receiving interest payments and convert the principle into 100,000 shares of stock anytime in the first TWO years. The investor could convert to stock in or at the end of year three AT MARKET VALUE)



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Peter McMahon Business Plan Writer

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