Raising Equity/Debt Capital

Private Placements

The Securities Act exempts from registration "transactions by an issuer not involving any public offering." To qualify for this exemption, the purchasers of the securities must:

• have enough knowledge and experience in finance and business matters to evaluate the risks and merits of the investment (the "sophisticated investor"), or be able to bear the investment's economic risk;
• have access to the type of information normally provided in a prospectus; and
• agree not to resell or distribute the securities to the public.

In addition, you may not use any form of public solicitation or general advertising in connection with the offering. The precise limits of this private offering exemption are uncertain. As the number of purchasers increases and their relationship to the company and its management becomes more remote, it is more difficult to show that the transaction qualifies for the exemption. You should know that if you offer securities to even one person who does not meet the necessary conditions, the entire offering may be in violation of the Securities Act. Because of the regulation that invalidates an entire offering if the offering is presented to even a single person that does not meet the necessary conditions, most securities brokers will refuse to participate.

Because the offering cannot be public, the company or its officers or directors must have some sort of preexisting relationship with private placement investors, in addition to the investors being qualified to purchase.

Public Offerings

All securities sold outside of a private placement must be registered with the Securities and Exchange Commission and various states in some situations. The registration process takes four to five months. In the recent past, most public offerings are managed by an underwriter. There is no requirement for an underwriter if the company is already public. A company conducting an offering without an underwriter can hire securities brokerage firms to sell shares to the public providing that no individual firm sells more than ten percent of an offering.

The offering period without an underwriter is usually six months, sometimes longer. These offerings have no minimum or escrow. The company can invest the offering proceeds starting with the first dollar raised. Brokerage firms can participate in the offering and be paid commissions providing that no one broker sells more than ten percent of the offering. Companies can form a syndicate of brokerage firms to sell the offering as long as the ten percent rule is honored.

Public offerings can be for debt or equity and a combination of both. A public company can make an unlimited number of public offerings for unlimited amounts as often as desired provided that each offering has a separate registration.