Selling SECURITIES Without Registering With The SEC!! It's LEGAL!
Right now, there are so many ways to raise capital for your start-up or business venture. As we can see, the need to obtain loans from service providers (banks) is slowly fading away. One of the very popular ways that I love a whole lot is selling memberships of a limited liability company.
That's right! Your limited liability company is allowed to issue securities. The security can either be an equity interest in your company such as a stock or membership. There are two ways to go about doing this easily and legally.
To start, let's not get anything twisted. If your company wishes to sell securities it must be registered with the federal Securities and Exchange Commission (SEC) simply because securities sold in the U.S. must be registered however NOT ALL offerings of securities require registration with the Commission.
Some exemptions from the registration requirement include:
▪ Private offerings to a limited number of persons or institutions;
▪ Offerings of limited size;
▪ Intrastate offerings; and
▪ Securities of municipal, state, and federal governments.
Episode 5 of the Secured Entrepreneur Show for your listening pleasure
Let me explain what this is about. If your LLC sold interests to a small group of individuals without advertising it, the LLC can fall into a private offering exemption which means that your company is exempt from having to register with the securities exchange commission in order to raise some needed capital.
This can happen when the following are true:
- All persons to whom offers are made are financially astute, are participants in the business, or have a substantial net worth.
- No advertising or general solicitation is used to promote the stock.
- The number of persons to whom the offers are made is limited.
- The shares are purchased for investment and not for immediate resale.
- The persons to whom the interest is offered are given all relevant financial information regarding the issuance and the company.
- A filing that states the exemption is made upon the United States Securities and Exchange Commission.
Now, if your LLC is only offering its securities in one state, it may also be exempt from federal securities laws because federal laws only apply to interstate commerce.
Each state has securities laws which are called blue sky laws so if your LLC wishes to offer stock in all fifty states, it must be registered in all fifty states unless it fits into one of the exemptions that I mentioned.
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