An equity security, such as the common or preferred stock of a company, makes you a joint owner of that company. As an owner, you have the right to share in any profit distributions and also share in the company’s value appreciation. There are, however, some risks involved with holding equity, including but not limited to:

• Loss of your investment: if a company dissolves, you are paid after all the creditors, meaning there may not be any money left to pay investors after debts have been paid. Thus, you can potentially lose your entire investment

• No dividends: an issuer might not plan to issue dividends. Additionally, a business might not generate enough profit to issue dividends

• Subordination to creditors: in the event of bankruptcy, creditors are paid first and can go after a company’s assets until debts are satisfied. As an investor, you are paid last, meaning there might not be any money left to pay you and other investors

• You may not be able to sell the securities: highly illiquid securities may not find any secondary market on which to be sold. Additionally, securities might have other restrictions that prevent you from transferring them to another investor

Initial Public Offering

With Regulation A+, you can begin testing-the-water marketing to obtain Indications of Interest from potential investors. You must have 2 years of audited financial statements. Your attorney will help you prepare and file a Form 1-A with the SEC (Securities and Exchange Commission). Once you are qualified by the SEC to offer securities, you can submit an application to OTC Markets, NASDAQ or NYSE for listing.

S-1 Registration – Have your attorney prepare and file and S-1 Form with the SEC along with 2 years of audited financial statements. Register the  number of shares to sell to investors, and then apply to FINRA for a trading symbol and the SEC for a CUSIP Number. Once you file your S-1 registration you are in a “Quiet Period”, at which during this time, you cannot raise capital, discuss your capital raise with potential investors, or market your offering. Wait for S-1 to be Declared Effective by the SEC.

Direct Registration with NASDAQ

Submit an application with the Exchange for a listing. You cannot raise capital through this method. You can only register shares of existing shareholder/investors to provide these investors with an exit or liquidity event.

What is Regulation CF?

Regulation Crowdfunding, also known as Reg CF, offers an exemption from the registration requirements for securities crowdfunding. Through Reg CF, companies can offer and sell securities up to $5 million without having to register its offering with the SEC. This Regulation offers vast opportunities for start-ups and small businesses to raise capital. Regulation CF allows anyone from the general public to make an investment. Investing under Regulation CF can be risky and investors can lose their entire investment. As such, the SEC has limited the amount one can invest, which is dependent upon one’s net worth and annual income.

Crowdfunding is a financing method that raises money through soliciting relatively small individual investments or contributions from a large number of people.

Specific Securities and Exchange Commission (SEC) regulations exist for companies hoping to carry out securities offers through crowdfunding. According to Regulation Crowdfunding, a company must register with the SEC before making any offer or sale of security, unless said company is exempt.

The Securities Act of 1933 required registration of any offer and sale of securities, absent an available and applicable exemption from registration. The Jumpstart Our Business Startups Act enacted in 2012 loosened some regulations regarding the offer and sale of private securities. In particular, Securities Act Section 4(a)(6) of the JOBS Act allows certain crowdfunding transactions exemption from registration. In 2015, the Commission adopted Regulation Crowdfunding, which allowed eligible companies to raise funds via Regulation Crowdfunding beginning May 2016.

For more than two hundred years investors have publicly traded stocks and bonds. But those types of investments have their limitations, leading savvy investors to alternative securities for the purpose of generating income, diversifying portfolios, boosting returns, or raising funds for other projects.

These alternatives include real estate, stock or membership units in privately-held businesses, private equity, commodities, venture capital, farmland/timberland, mineral rights, tax lien certificates, hedge funds, annuities, art and collectibles, or even wine collections or antique coins. In short, a multitude of investment options are available beyond the floor of the New York Stock Exchange.

Why do people invest in alternative securities? Some of the most prevalent reasons include favorable economic conditions, less dependence on typical market fluctuations, leveraging specific knowledge or skills, tax advantages, illiquid investments, higher fees, and market volatility.

 

Regulation D allows the raising of funds and capital through private offerings of debt and/or equity securities without registering the securities with the Securities Exchange Commission (SEC). Regulation D is not to be confused with the Federal Reserve Board Regulation D, a regulation that limits withdrawals from savings accounts. Many companies prefer raising capital under Regulation D versus going through a public offering’s tedious requirements. Regulation D offerings give companies plenty of time to sell securities that cannot be issued under certain circumstances. Companies raising funds through a Regulation D investment typically have less burdensome requirements compared to those of traditional public offerings. Several clauses within the regulation emphasize how issuers can solicit prospective investors from their network.

What is Regulation D?

Regulation D set SEC regulatory measures for implementing private placement exemptions. Raising capital through Regulation D is beneficial, as it streamlines the acquisition of funds for private companies. Without a public offering and at a significantly lower cost, small entrepreneurs can expand their capital through the sale of equity or debt securities. While extremely advantageous to up and coming businesses, regulatory requirements apply under Regulation D. Regulation D imposes numerous rules highlighting qualifications for issuing securities’ registration requirements. This regulation divides into three main exemptions: Rules 501, 502, and 503. Rule 501 defines all terms utilized throughout Regulation D. Rule 502 subsequently refers to important conditions required to meet certain exemptions under Regulation D. Conditions stated in Rule 502:

• Issuers must provide information and disclosures

• General Solicitation is prohibited

• When securities sold are placed on the market again, one must observe certain restrictions

Lastly, Rule 503 requires all issuers to fulfill a Form D with the SEC. Businesses must file this form before making an offering under Regulation D.

Legal Requirements for Regulation D

Entrepreneurs can raise their capital with only one or two investors under Regulation D.

Businesses, however, still must adhere to state and regulatory measures. Issuers must submit both the proper framework and disclosure documentation.

Form D

Issuers must file Form D with the SEC. One can access and file this form online after an initial sale of securities. Form D requires far less information to complete than the lengthy forms involved in public offerings. One must simply record names and addresses of a company’s executives and directors, in addition to disclosing a few details regarding an offering.

 

Debt securities, like promissory notes and bonds, allow you to be paid before equity investors in the event of the company’s bankruptcy. A debt based offering is often term loans. These loans can pay any amount of interest or not pay an interest. Many different structures for debt securities exist. You should therefore strongly consider learning about a particular security’s risks before investing. Some risks associated with debt securities include:

• Repayments and payments are not guaranteed: while you, as a creditor, have payment priority if a company dissolves, a company may simply not have enough money to pay its debts

• No third party credit ratings: credit ratings are designed to help investors gauge the risks of a debt security. Securities on our Portal might not be rated by rating agencies such as Moody’s and

• Standard & Poor’s, leaving investors with little to no objective measure to judge the company’s creditworthiness
  Interest rate might not adequately compensate your risks: chances are that the interest you will earn does not adequately compensate the level of risk you are taking

• Lack of security: a promissory note may or may not be secured by property, such as an interest in real estate or equity

 

An equity security, such as the common or preferred stock of a company, makes you a joint owner of that company. As an owner, you have the right to share in any profit distributions and also share in the company’s value appreciation. There are, however, some risks involved with holding equity, including but not limited to:

• Loss of your investment: if a company dissolves, you are paid after all the creditors, meaning there may not be any money left to pay investors after debts have been paid. Thus, you can potentially lose your entire investment

• No dividends: an issuer might not plan to issue dividends. Additionally, a business might not generate enough profit to issue dividends

• Subordination to creditors: in the event of bankruptcy, creditors are paid first and can go after a company’s assets until debts are satisfied. As an investor, you are paid last, meaning there might not be any money left to pay you and other investors

• You may not be able to sell the securities: highly illiquid securities may not find any secondary market on which to be sold. Additionally, securities might have other restrictions that prevent you from transferring them to another investor