Posted by Rob Ricker on July 26, 2005 at 09:41:29:
I will definitely do additional research on this issue and talk to my attorney as well. It definitely sounds like something that must be entered into carefully. Once again, thank you!
Advertise for money partners in the newspaper… - Posted by Levi
Posted by Levi on July 25, 2005 at 10:25:47:
Is it legal?
It depends - Posted by Mike
Posted by Mike on July 25, 2005 at 12:12:10:
It depends on the state and what you are advertising. Technically, you may be deemed to be making an offer for the sale of a security, something that most of the people who encourage this type of activity always seem to neglect to mention. For example, I can do it in TN and no other states, as long as the total offering is less than $250K in a year. If I do it in multiple states, I need a federal exemption, such as Rule 506 of Regulation D. Depending on the type of offering you are doing, general advertisement is often prohibited by Regulation D. Since most people do the offering intra-state (i.e., inside a single state), they need to check their own state laws to see if an exemption is available.
Most states have intra-state exemptions for 10 or fewer investors or 15 or fewer investors. Some do not. Some states look at “offers” and others look only at “sales.”
Some will laugh and say this is overkill. As someone who has dealt with state and federal securities regulators on a regular basis for the better part of the past 10 years, I’d suggest that laughing may be at your own peril. It only takes one regulator to read your ad before Lucy has some ‘splainin’ to do.
I’d suggest getting proper advice for your state before doing it. You don’t want to get forced to rescind your contracts and/or get slapped with a cease & desist order (or worse).
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Re: It depends - Posted by Rob Ricker
Posted by Rob Ricker on July 26, 2005 at 24:01:28:
Hi Mike,
I’m in Tennessee and I’ve often considered advertising for money partners. Are you saying that it is legal in TN up to $250,000 per year? If so, that’s good news for me. A few good money partners would expedite my business plan. I look forward to hearing back from you!
Great advice Mike… - Posted by JT-IN
Posted by JT-IN on July 25, 2005 at 13:38:27:
Right on the button. As you say, many will consider it overkill, but in reality it is not one bit of overkill.
Scrutiny from the Secy of State - Div of Securities is worse than getting an full-blown audit letter from the IRS… With the SOS, you ARE guilty, until you prove you are not… Well, I guess that is pretty much the same way with the IRS too…
Good avice…
JT-IN
Re: It depends - Posted by Mike
Posted by Mike on July 26, 2005 at 08:28:33:
TCA 48-2-103(b)(6) provides an exemption from certain parts of the securities act for “Any offering of securities by or on behalf of an issuer organized under the laws of or domiciled in this state in which the aggregate amount sold in this state does not exceed two hundred fifty thousand dollars ($250,000) during any twelve-month period, if no commission or other remuneration is paid or given directly or indirectly for soliciting any purchaser in this state, exclusive of any amount of securities sold in exempt transactions pursuant to subdivision (b)(3); provided, that this exemption shall not be available for any offering of certificates of interest or participation in an oil, gas or mining title or lease or in payments out of production under such a title or lease.”
It’s not as simple as it looks, however. You need to obtain securities counsel to advise you on how to proceed with your offering. You can rely on this exemption and screw it up and end up in a lot of trouble if you don’t know exactly what you are doing. For example, what if your advertisement crosses state lines? You better make sure the ad is clear as to whom it is directed at or you could end up in trouble in another state. It is critical that the ad be properly worded. This ought to get you pointed in the right direction but I want to caution you that this is not an area for the layperson to take a shot at accomplishing without the advice of a lawyer who knows your entire plan. You still have anti-fraud issues to deal with and that is not nearly is simple as saying you will be truthful. It is a disclosure issue and you want to protect yourself from all the knuckleheads, as well as the securities regulators. You also still have federal law to deal with. You’ll want a good subscription agreement to protect you from the knuckleheads if things go bad.
Also, this exemption is very good for small businesses in Tennessee, but I think it is fair to say that the regulators hate it. They generally don’t get any money out of it and once in a while some little old granny gets screwed on account of it. That said, we must be vigilant in making sure people don’t abuse the exemption or otherwise screw it up. My opinion is that they are looking for an excuse to do away with it. This is a very specialized area of law and I would strongly encourage you to contact a lawyer who specializes in it before proceeding. Like all things on Internet sites such as this, you should assume that the information I give you is incorrect and should not rely on it in any way without consulting with your counsel.