- I.
What Are the Federal Securities Laws?
- II.
How Can I Get Answers to My Questions?
- III.
Should My Company "Go Public"?
- IV.
How Does My Small Business Register a Public
Offering?
- V.
If My Company Becomes Public, What Disclosures
Must I Regularly Make?
- VI.
Are there legal ways to offer and Sell Securities
Without Registering With the SEC?
- A. Intrastate Offering Exemption
- B. Private Offering Exemption
- C. Regulation A
- D. Regulation D
- E. Accredited Investor Exemption -
Section 4(6)
- F. California Limited Offering Exemption
- Rule 1001
- G. Exemption for sales of securities
through employee benefit plans - Rule 701
- VII.
Are There State Law Requirements in Addition to
Federal Ones?
- VIII.
What Resources Are Available Through the U.S.
Small Business Administration?
- IX.
Where Can I Go for More Information?
- X.
How Can We Improve This Guide?
In the chaotic securities markets of the 1920s,
companies often sold stocks and bonds on the basis of
glittering promises of fantastic profits - without
disclosing any meaningful information to investors. These
conditions contributed to the disastrous Stock Market
Crash of 1929. In response, the U.S. Congress enacted the
federal securities laws and created the Securities and
Exchange Commission (SEC) to administer them.
There are two primary sets of federal laws that come
into play when a company wants to offer and sell its
securities to the public. They are:
- the Securities Act of 1933 (Securities Act), and
- the Securities Exchange Act of 1934 (Exchange
Act).
Securities Act
The Securities Act generally requires companies to
give investors "full disclosure" of all
"material facts," the facts investors would
find important in making an investment decision. This Act
also requires companies to file a registration statement
with the SEC that includes information for investors. The
SEC does not evaluate the merits of offerings, or
determine if the securities offered are "good"
investments. The SEC staff reviews registration
statements and declares them "effective" if
companies satisfy our disclosure rules. We describe this
process in more detail beginning on page 7.
Exchange Act
The Exchange Act requires publicly held companies to
disclose information continually about their business
operations, financial conditions, and managements. These
companies, and in many cases their officers, directors
and significant shareholders, must file periodic reports
or other disclosure documents with the SEC. In some
cases, the company must deliver the information directly
to investors. We discuss these obligations more fully
beginning on page 11.
Exemptions
Your company may be exempt from these registration and
reporting requirements. We discuss exemptions beginning
on page 16.
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The SEC tries to meet the needs of small business
through its rules and regulations. It also offers
informal guidance by answering your questions over the
phone, through the mail or by e-mail. The SEC offers you
a number of ways to express your views and get help from
the staff. Of course, you should always retain competent
counsel before engaging in any securities offering.
Special Ombudsman to Serve You
In 1996, we appointed a Special Ombudsman for Small
Business to serve you and to represent the concerns of
smaller companies within the SEC. You can tell the
Ombudsman your concerns about any SEC proposal or rule.
The Ombudsman also can answer your general questions or
help you find the answers to your specific questions. The
Ombudsman's telephone number is (202) 942-2950.
The Office of Small Business
The Division of Corporation Finance's Office of Small
Business directs the SEC's small business rulemaking
initiatives and comments on SEC rule proposals affecting
small companies. Its staff works with Congressional
committees, government agencies, and other groups
concerned with small business. The Office also
specializes in the review of filings from small
companies. Its telephone number is (202) 942-2950.
Town Hall Meetings
The Office of Small Business also sponsors small
business town hall meetings across the country. These
meetings help the SEC convey basic information to small
businesses and learn more about the problems small
businesses face in raising capital. These meetings help
the SEC design programs that meet small businesses' needs
while protecting investors.
Government-Business Forum on Small Business
Capital Formation
In addition to the town hall meetings, the SEC
sponsors the Government-Business Forum on Small Business
Capital Formation. This annual meeting provides the only
national forum for small businesses to let government
officials from different parts of the federal government
know how the laws, rules and regulations impact the
ability of small companies to raise capital. You can get
more information about this forum from the Office of
Small Business.
Internet Web Site
We also maintain a home page on the World Wide Web at http://www.sec.gov/. Our
site includes recent SEC releases and other updating
information of interest to small companies. Through our
Web site, small companies and investors can also find
documents publicly filed on the SEC's Electronic Data
Gathering, Analysis, and Retrieval, or EDGAR, system.
Most registration statements and other documents must now
be filed electronically via that system.
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III. Should My Company “Go Public”?
When your company needs additional capital,
"going public" may be the right choice, but you
should weigh your options carefully. If your company is
in the very early stages of development, it may be better
to seek loans from financial institutions or the Small
Business Administration. Other alternatives include
raising money by selling securities in transactions that
are exempt from the registration process. We discuss
these alternatives later.
There are benefits and new obligations that come from
raising capital through a public offering registered with
the SEC. While the benefits are attractive, be sure you
are ready to assume these new obligations:
Benefits
- Your access to capital will increase, since you
can contact more potential investors.
- Your company may become more widely known.
- You may obtain financing more easily in the
future if investor interest in your company grows
enough to sustain a secondary trading market in
your securities.
- Controlling shareholders, such as the company's
officers or directors, may have a ready market
for their shares, which means that they can more
easily sell their interests at retirement, for
diversification, or for some other reason.
- Your company may be able to attract and retain
more highly qualified personnel if it can offer
stock options, bonuses, or other incentives with
a known market value.
- The image of your company may be improved.
New Obligations
- You must continue to keep shareholders informed
about the company's business operations,
financial condition, and management, incurring
additional costs and new legal obligations.
- You may be liable if you do not fulfill these new
legal obligations.
- You may lose some flexibility in managing your
company's affairs, particularly when shareholders
must approve your actions.
- Your public offering will take time and money to
accomplish.
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IV. How Does My Small Business Register a Public
Offering?
If you decide on a registered public offering, the
Securities Act requires your company to file a
registration statement with the SEC before the company
can offer its securities for sale. You cannot actually
sell the securities covered by the registration statement
until the SEC staff declares it "effective,"
even though registration statements become public
immediately upon filing.
Registration statements have two principal parts:
- Part I is the prospectus, the legal offering or
"selling" document. Your company - the
"issuer" of the securities - must
describe in the prospectus the important facts
about its business operations, financial
condition, and management. Everyone who buys the
new issue, as well as anyone who is made an offer
to purchase the securities, must have access to
the prospectus.
- Part II contains additional information that the
company does not have to deliver to investors.
Anyone can see this information by requesting it
from one of the SEC's public reference rooms or
by looking it up on the SEC Web site.
The Basic Registration Form - Form S-1
All companies can use Form S-1 to register their
securities offerings. You should not prepare a
registration statement as a fill-in-the-blank form, like
a tax return. It should be similar to a brochure,
providing readable information. If you file this form,
your company must describe each of the following in the
prospectus:
- its business;
- its properties;
- its competition;
- the identity of its officers and directors and
their compensation;
- material transactions between the company and its
officers and directors;
- material legal proceedings involving the company
or its officers and directors;
- the plan for distributing the securities; and the
intended use of the proceeds of the offering.
Information about how to describe these items is set
out in SEC rules. Registration statements also must
include financial statements audited by an independent
certified public accountant.
In addition to the information expressly required by
the form, your company must also provide any other
information that is necessary to make your disclosure
complete and not misleading. You also must clearly
describe any risks prominently in the prospectus, usually
at the beginning. Examples of these risk factors are:
- lack of business operating history;
- adverse economic conditions in a particular
industry;
- lack of a market for the securities offered; and
- dependence upon key personnel.
Alternative Registration Forms for Small Business
Issuers
If your company qualifies as a "small business
issuer," it can choose to file its registration
statement using one of the simplified small business
forms. A small business issuer is a United States or
Canadian issuer:
- that had less than $25 million in revenues in its
last fiscal year, and
- whose outstanding publicly-held stock is worth no
more than $25 million.
Form SB-1 - To Raise $10 Million or Less
Small business issuers offering up to $10 million
worth of securities in any 12-month period may use Form
SB1. This form allows you to provide information in a
question and answer format, similar to that used in
Regulation A offerings, a type of exempt offering
discussed on page 19. Unlike Regulation A filings, Form
SB-1 requires audited financial statements.
Form SB-2 - To Raise Capital in Any Amount
If your company is a "small business
issuer," it may register an unlimited dollar amount
of securities using Form SB-2, and may use this form
again and again so long as it satisfies the "small
business issuer" definition.
One advantage of Form SB-2 is that all its
disclosure requirements are in Regulation S-B, a set
of rules written in simple, non-legalistic terminology.
Form SB-2 also permits the company to:
- Provide audited financial statements, prepared
according to generally accepted accounting
principles, for two fiscal years. In contrast,
Form S-1 requires the issuer to provide audited
financial statements, prepared according to more
detailed SEC regulations, for three fiscal years;
and
- Include less extensive narrative disclosure than
Form S-1 requires, particularly in the
description of your business, and executive
compensation.
Staff Review of Registration Statements
SEC staff examines registration statements for
compliance with disclosure requirements. If a filing
appears incomplete or inaccurate, the staff usually
informs the company by letter. The company may file
correcting or clarifying amendments. Once the company has
satisfied the disclosure requirements, the staff declares
the registration statement effective. The company may
then begin to sell its securities. The SEC can refuse or
suspend the effectiveness of any registration statement
if it concludes that the document is misleading,
inaccurate, or incomplete.
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V. If My Company Becomes Public, What Disclosures
Must I Regularly Make?
Your company can become "public" in one of
two ways - by issuing securities in an offering
registered under the Securities Act or by registering the
company's outstanding securities under Exchange Act
requirements. Both types of registration trigger ongoing
reporting obligations for your company. In some cases,
the Exchange Act also subjects your company's officers,
directors and significant shareholders to reporting
requirements. Let's discuss these requirements
individually.
Reporting obligations because of Securities Act
registration
Once the staff declares your company's Securities Act
registration statement effective, the Exchange Act
requires you to file reports with the SEC. The obligation
to file reports continues at least through the end of the
fiscal year in which your registration statement becomes
effective. After that, you are required to continue
reporting unless you satisfy the following
"thresholds," in which case your filing
obligations are suspended:
- your company has fewer than 300 shareholders of
the class of securities offered; or
- your company has fewer than 500 shareholders of
the class of securities offered and less than $10
million in total assets for each of its last
three fiscal years.
If your company is subject to the reporting
requirements, it must file information with the SEC
about:
- its operations;
- its officers, directors, and certain
shareholders, including salary, various fringe
benefits, and transactions between the company
and management;
- the financial condition of the business,
including financial statements audited by an
independent certified public accountant; and
- its competitive position and material terms of
contracts or lease agreements.
All of this information becomes publicly available
when you file your reports with the SEC. As is true with
Securities Act filings, small business issuers may choose
to use small business alternative forms and Regulation
S-B for registration and reporting under the Exchange
Act.
Obligations because of Exchange Act registration
Even if your company has not registered a securities
offering, it must file an Exchange Act registration
statement if:
- it has more than $10 million total assets and a
class of equity securities, like common stock,
with 500 or more shareholders; or
- it lists its securities on an exchange or on
Nasdaq.
If a class of your company's securities is registered
under the Exchange Act, the company, as well as its
shareholders and management, are subject to various
reporting requirements, explained below.
Ongoing Exchange Act periodic reporting
If your company registers a class of securities under
the Exchange Act, it must file the same annual, periodic,
and current reports that are required as a result of
Securities Act registration, as explained above. This
obligation continues for as long as the company exceeds
the reporting thresholds previously outlined on page 11.
If your company's securities are traded on an exchange or
on Nasdaq, the company must continue filing these reports
as long as the securities trade on those markets, even if
your company falls below the thresholds.
Proxy rules
A company with Exchange Act registered securities must
comply with the SEC's proxy rules whenever it seeks a
shareholder vote on corporate matters. These rules
require the company to provide a proxy statement to its
shareholders, together with a proxy card when soliciting
proxies. Proxy statements discuss management and
executive compensation, along with descriptions of the
matters up for a vote. If the company is not soliciting
proxies but will take a vote on a matter, the company
must provide to its shareholders an information statement
that is similar to a proxy statement. The proxy rules
also require your company to send an annual report to
shareholders if there will be an election of directors.
These reports contain much of the same information found
in the Exchange Act annual reports that a company must
file with the SEC, including audited financial
statements. The proxy rules also govern when your company
must provide shareholder lists to investors and when it
must include a shareholder proposal in the proxy
statement.
Beneficial ownership reports
If your company has registered a class of its equity
securities under the Exchange Act, persons who acquire
more than five percent of the outstanding shares of that
class must file beneficial owner reports until their
holdings drop below five percent. These filings contain
background information about the beneficial owners as
well as their investment intentions, providing investors
and the company with information about accumulations of
securities that may potentially change or influence
company management and policies.
Tender offers
A public company with Exchange Act registered
securities that faces a takeover attempt, or third party
tender offer, should be aware that the SEC's tender offer
rules will apply to the transaction. The same is true if
the company makes a tender offer for its own Exchange Act
registered securities. The filings required by these
rules provide information to the public about the person
making the tender offer. The company that is the subject
of the takeover must file with the SEC its responses to
the tender offer. The rules also set time limits for the
tender offer and provide other protections to
shareholders.
Transaction reporting by officers, directors and
ten percent shareholders
Section 16 of the Exchange Act applies to your
company's directors and officers, as well as shareholders
who own more than 10% of a class of your company's equity
securities registered under the Exchange Act. It requires
these persons to report their transactions involving the
company's equity securities to the SEC. Section 16 also
establishes mechanisms for a company to recover
"short swing" profits, those profits an insider
realizes from a purchase and sale of a company security
within a six-month period. In addition, Section 16
prohibits short selling by these persons of any class of
the company's securities, whether or not that class is
registered under the Exchange Act.
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Yes! Your company's securities offering may qualify
for one of several exemptions from the registration
requirements. We explain the most common ones below. You
must remember, however, that all securities transactions,
even exempt transactions, are subject to the antifraud
provisions of the federal securities laws. This means
that you and your company will be responsible for false
or misleading statements, whether oral or written. The
government enforces the federal securities laws through
criminal, civil and administrative proceedings. Some
enforcement proceedings are brought through private law
suits. Also, if all conditions of the exemptions are not
met, purchasers may be able to obtain refunds of their
purchase price. In addition, offerings that are exempt
from provisions of the federal securities laws may still
be subject to the notice and filing obligations of
various state laws. Make sure you check with the
appropriate state securities administrator before
proceeding with your offering.
A. Intrastate Offering Exemption Section
3(a)(11) of the Securities Act is generally known as the
"intrastate offering exemption." This exemption
facilitates the financing of local business operations.
To qualify for the intrastate offering exemption, your
company must:
- be incorporated in the state where it is offering
the securities;
- carry out a significant amount of its business in
that state; and
- make offers and sales only to residents of that
state.
There is no fixed limit on the size of the offering or
the number of purchasers. Your company must determine the
residence of each purchaser. If any of the securities are
offered or sold to even one out-of-state person, the
exemption may be lost. Without the exemption, the company
could be in violation of the Securities Act registration
requirements. If a purchaser resells any of the
securities to a person who resides outside the state
within a short period of time after the company's
offering is complete (the usual test is nine months), the
entire transaction, including the original sales, might
violate the Securities Act. Since secondary markets for
these securities rarely develop, companies often must
sell securities in these offerings at a discount.
It will be difficult for your company to rely on the
intrastate exemption unless you know the purchasers and
the sale is directly negotiated with them. If your
company holds some of its assets outside the state, or
derives a substantial portion of its revenues outside the
state where it proposes to offer its securities, it will
probably have a difficult time qualifying for the
exemption.
You may follow Rule 147, a "safe harbor"
rule, to ensure that you meet the requirements for this
exemption. It is possible, however, that transactions not
meeting all requirements of Rule 147 may still qualify
for the exemption.
B. Private Offering Exemption
Section 4(2) of the Securities Act exempts from
registration "transactions by an issuer not
involvingany 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.
Rule 506, another "safe harbor" rule,
provides objective standards that you can rely on to meet
the requirements of this exemption. Rule 506 is a part of
Regulation D, which we describe more fully on page
24.
C. Regulation A
Section 3(b) of the Securities Act authorizes the SEC
to exempt from registration small securities offerings.
By this authority, we created Regulation A, an exemption
for public offerings not exceeding $5 million in any
12-month period. If you choose to rely on this exemption,
your company must file an offering statement, consisting
of a notification, offering circular, and exhibits, with
the SEC for review.
Regulation A offerings share many characteristics with
registered offerings. For example, you must provide
purchasers with an offering circular that is similar in
content to a prospectus. Like registered offerings, the
securities can be offered publicly and are not
"restricted," meaning they are freely tradeable
in the secondary market after the offering. The principal
advantages of Regulation A offerings, as opposed to full
registration, are:
- The financial statements are simpler and don't
need to be audited;
- There are no Exchange Act reporting obligations
after the offering unless the company has more
than $10 million in total assets and more than
500 shareholders;
- Companies may choose among three formats to
prepare the offering circular, one of which is a
simplified question-and-answer document; and
- You may "test the waters" to determine
if there is adequate interest in your securities
before going through the expense of filing with
the SEC.
All types of companies which do not report under the
Exchange Act may use Regulation A, except "blank
check" companies, those with an unspecified
business, and investment companies registered or required
to be registered under the Investment Company Act of
1940. In most cases, shareholders may use Regulation A to
resell up to $1.5 million of securities.
If you "test the waters," you can use
general solicitation and advertising prior to filing an
offering statement with the SEC, giving you the advantage
of determining whether there is enough market interest in
your securities before you incur the full range of
legal, accounting, and other costs associated with filing
an offering statement. You may not, however, solicit or
accept money until the SEC staff completes its review of
the filed offering statement and you deliver prescribed
offering materials to investors.
D. Regulation D
Regulation D establishes three exemptions from
Securities Act registration. Let's address each one
separately.
Rule 504
Rule 504 provides an exemption for the offer and sale
of up to $1,000,000 of securities in a 12-month period.
Your company may use this exemption so long as it is not
a blank check company and is not subject to Exchange Act
reporting requirements. Like the other Regulation D
exemptions, in general you may not use public
solicitation or advertising to market the securities and
purchasers receive "restricted" securities,
meaning that they may not sell the securities without
registration or an applicable exemption. However, you can
use this exemption for a public offering of your
securities and investors will receive freely tradable
securities under the following circumstances:
- You register the offering exclusively in one or
more states that require a publicly filed
registration statement and delivery of a
substantive disclosure document to investors;
- You register and sell in a state that requires
registration and disclosure delivery and also
sell in a state without those requirements, so
long as you deliver the disclosure documents
mandated by the state in which you registered to
all purchasers; or,
- You sell exclusively according to state law
exemptions that permit general solicitation and
advertising, so long as you sell only to
"accredited investors," a term we
describe in more detail below in connection with
Rule 505 and Rule 506 offerings.
Even if you make a private sale where there are no
specific disclosure delivery requirements, you should
take care to provide sufficient information to investors
to avoid violating the antifraud provisions of the
securities laws. This means that any information you
provide to investors must be free from false or
misleading statements. Similarly, you should not exclude
any information if the omission makes what you do provide
investors false or misleading.
Rule 505
Rule 505 provides an exemption for offers and sales of
securities totaling up to $5 million in any 12-month
period. Under this exemption, you may sell to an
unlimited number of "accredited investors" and
up to 35 other persons who do not need to satisfy the
sophistication or wealth standards associated with other
exemptions. Purchasers must buy for investment only, and
not for resale. The issued securities are
"restricted." Consequently, you must inform
investors that they may not sell for at least a year
without registering the transaction. You may not use
general solicitation or advertising to sell the
securities.
An "accredited investor" is:
- a bank, insurance company, registered investment
company, business development company, or small
business investment company;
- an employee benefit plan, within the meaning of
the Employee Retirement Income Security Act, if a
bank, insurance company, or registered investment
adviser makes the investment decisions, or if the
plan has total assets in excess of $5 million;
- a charitable organization, corporation or
partnership with assets exceeding $5 million;
- a director, executive officer, or general partner
of the company selling the securities;
- a business in which all the equity owners are
accredited investors;
- a natural person with a net worth of at least $1
million;
- a natural person with income exceeding $200,000
in each of the two most recent years or joint
income with a spouse exceeding $300,000 for those
years and a reasonable expectation of the same
income level in the current year; or
- a trust with assets of at least $5 million, not
formed to acquire the securities offered, and
whose purchases are directed by a sophisticated
person.
It is up to you to decide what information you give to
accredited investors, so long as it does not violate the
antifraud prohibitions. But you must give non-accredited
investors disclosure documents that generally are the
same as those used in registered offerings. If you
provide information to accredited investors, you must
make this information available to the non-accredited
investors as well. You must also be available to answer
questions by prospective purchasers.
Here are some specifics about the financial statement
requirements applicable to this type of offering:
- Financial statements need to be certified by an
independent public accountant;
- If a company other than a limited partnership
cannot obtain audited financial statements
without unreasonable effort or expense, only the
company's balance sheet, to be dated within 120
days of the start of the offering, must be
audited; and
- Limited partnerships unable to obtain required
financial statements without unreasonable effort
or expense may furnish audited financial
statements prepared under the federal income tax
laws.
Rule 506
As we discussed earlier, Rule 506 is a "safe
harbor" for the private offering exemption. If your
company satisfies the following standards, you can be
assured that you are within the Section 4(2) exemption:
- You can raise an unlimited amount of capital;
- You cannot use general solicitation or
advertising to market the securities;
- You can sell securities to an unlimited number of
accredited investors (the same group we
identified in the Rule 505 discussion) and up to
35 other purchasers. Unlike Rule 505, all
non-accredited investors, either alone or with a
purchaser representative, must be
sophisticated - that is, they must have
sufficient knowledge and experience in financial
and business matters to make them capable of
evaluating the merits and risks of the
prospective investment;
- It is up to you to decide what information you
give to accredited investors, so long as it does
not violate the antifraud prohibitions. But you
must give non-accredited investors disclosure
documents that generally are the same as those
used in registered offerings. If you provide
information to accredited investors, you must
make this information available to the
non-accredited investors as well;
- You must be available to answer questions by
prospective purchasers;
- Financial statement requirements are the same as
for Rule 505; and
- Purchasers receive "restricted"
securities. Consequently, purchasers may not
freely trade the securities in the secondary
market after the offering.
E. Accredited Investor Exemption - Section 4(6)
Section 4(6) of the Securities Act exempts from
registration offers and sales of securities to accredited
investors when the total offering price is less than $5
million.
The definition of accredited investors is the same as
that used in Regulation D. Like the exemptions in Rule
505 and 506, this exemption does not permit any form of
advertising or public solicitation. There are no document
delivery requirements. Of course, all transactions are
subject to the antifraud provisions of the securities
laws.
F. California Limited Offering Exemption - Rule
1001
SEC Rule 1001 provides an exemption from the
registration requirements of the Securities Act for
offers and sales of securities, in amounts of up to $5
million, that satisfy the conditions of §25102(n) of the
California Corporations Code. This California law exempts
from California state law registration offerings made by
California companies to "qualified purchasers"
whose characteristics are similar to, but not the same
as, accredited investors under Regulation D. This
exemption allows some methods of general solicitation
prior to sales.
G. Exemption for Sales of Securities through
Employee Benefit Plans - Rule 701
The SEC's Rule 701 exempts sales of securities if made
to compensate employees. This exemption is available only
to companies that are not subject to Exchange Act
reporting requirements. You can sell at least $1,000,000
of securities under this exemption, no matter how small
your company is. You can sell even more if you satisfy
certain formulas based on your company's assets or on the
number of its outstanding securities. If you sell more
than $5 million in securities in a 12-month period,
you need to provide limited disclosure documents to your
employees. Employees receive "restricted
securities" in these transactions and may not freely
offer or sell them to the public.
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The federal government and state governments each have
their own securities laws and regulations. If your
company is selling securities, it must comply with
federal and state securities laws. If a particular
offering is exempt under the federal securities laws,
that does not necessarily mean that it is exempt from any
of the state laws.
Historically, most state legislatures have followed
one of two approaches in regulating public offerings of
securities, or a combination of the two approaches. Some
states review small businesses' securities offerings to
ensure that companies disclose to investors all
information needed to make an informed investment
decision. Other states also analyze public offerings
using substantive standards to assure that the terms and
structure of the offerings are fair to investors, in
addition to the focus on disclosure.
To facilitate small business capital formation, the
North American Securities Administrators Association, or
NASAA, in conjunction with the American Bar Association,
developed the Small Company Offering Registration, also
known as SCOR. SCOR is a simplified "question and
answer" registration form that companies also can
use as the disclosure document for investors. SCOR was
primarily designed for state registration of small
business securities offerings conducted under the SEC's
Rule 504, for sale of securities up to $1,000,000,
discussed on page 20. Currently, over 45 states recognize
SCOR. To assist small business issuers in completing the
SCOR Form, NASAA has developed a detailed "Issuer's
Manual." This manual is available through NASAA's
Web site at http://www.sec.gov/cgi-bin/goodbye.cgi?www.nasaa.org.
In addition, a small company can use the SCOR Form,
called Form U-7, to satisfy many of the filing
requirements of the SEC's Regulation A exemption, for
sales of securities of up to $5,000,000 (discussed on
page 19), since the company may file it with the SEC as
part of the Regulation A offering statement.
To assist small businesses offering in several states,
many states coordinate SCOR or Regulation A filings
through a program called regional review. Regional
reviews are available in the New England, Mid-Atlantic,
Midwest and Western regions.
Companies seeking additional information on SCOR,
regional reviews or the "Issuer's Manual"
should contact NASAA.
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When assessing your capital needs, you should consider
programs offered through the U.S. Small Business
Administration (SBA). Congress established the SBA in
1953 to aid, counsel, and protect the interests of the
Nation's small business community. The SBA accomplishes
this in part by working with intermediaries, banks, and
other lending institutions to provide loans and venture
capital financing to small businesses unable to secure
financing through normal lending channels. The SBA offers
financing through the programs listed below.
7(a) Loan Guaranty Program:
This is the SBA's primary lending program and was
designed to meet the majority of the small business
lending community's financing needs. In addition to
general financing, the 7(a) program also encompasses a
number of specialized loan programs. The following are a
few of the many specialized loan programs:
Low Doc
This program is designed to increase the availability
of funds under $100,000 and streamline or expedite the
loan review process.
CAPLines
An umbrella program to help small businesses meet
their short-term and cyclical working-capital needs with
five separate programs.
International Trade
If your business is preparing to engage in or is
already engaged in international trade, or is adversely
affected by competition from imports, the International
Trade Loan Program is for you; and
DELTA
Defense Loan and Technical Assistance is a joint SBA
and Department of Defense effort to provide financial and
technical assistance to defense-dependent small firms
adversely affected by cutbacks in defense.
Microloan Program
This program works through intermediaries to provide
small loans from as little as $100 up to $25,000.
Certified Development Company (504 Loan) Program
This program, commonly referred to as the 504 program,
makes long term loans available for purchasing land,
buildings, machinery and equipment, and for building,
modernizing or renovating existing facilities and sites.
Small Business Investment Company Program
Small Business Investment Companies (SBICs), which the
SBA licenses and regulates, are privately-owned and
managed investment firms that provide venture capital and
start-up financing to small businesses.
To find additional information on these and other
financial programs please contact your local SBA District
Office (call 1-800-8-ASK-SBA for the nearest office) or
look on SBA's Web site (http://www.sba.gov).
Additional Financial Resources and Information
from the SBA's Office of Advocacy
Angel Capital Electronic Network (ACE-Net)
The Office of Advocacy of SBA has established an
Internet site where small companies may list their
Regulation A and Regulation D 504/SCOR stock offerings.
ACE-Net is a cooperative effort between SBA and nine
universities, state-based entities, and other non-profit
organizations to provide a listing service where small
companies may list their stock offering for review by
high net worth investors (accredited investors). In
addition, ACE-Net anticipates providing mentoring and
educational services for small companies needing business
planning and securities information. You can find the
ACE-Net Internet site at the following URLs: http://www.sec.gov/cgi-bin/goodbye.cgi?www.sba.gov/ADVO/
or http://www.sec.gov/cgi-bin/goodbye.cgi?www.ace-net.org.
Small Business Lending in the United States
The Office of Advocacy of SBA has ranked the nearly
10,000 banks in the country on a state-by-state basis to
determine which banks are "small business
friendly." The state-by-state directory helps small
businesses locate which banks in their area are more
likely to lend to small business. The directory is
available over the Internet at: http://www.sec.gov/cgi-bin/goodbye.cgi?www.sba.gov/ADVO/stats/.
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The staff of the SEC's Office of Small Business and
the SEC's Small Business Ombudsman will be glad to assist
you with any questions you may have regarding federal
securities laws. For information about state securities
laws, contact NASAA or your state's securities
administrator, whose office is usually located in your
capital city.
The entire text of the SEC's rules and regulations is
available through the U.S. Government Printing Office or
from several private publishers of legal information. In
addition, numerous books on this subject have been
published, and some are available at public libraries. As
of this writing, the following volumes of Title 17 of the
Code of Federal Regulations (the SEC's rules and
regulations) were available from the Government Printing
Office:
- Vol. II - Parts 200 to 239. SEC Organization;
Conduct and Ethics; Information and Requests;
Rules of Practice; Regulation S-X and Securities
Act of 1933.
- Vol III - Parts 240 to End. Securities Exchange
Act of 1934; Public Utility Holding Company,
Trust Indenture, Investment Company, Investment
Advisers, and Securities Investor Protection
Corporation Acts.
For additional information about how to obtain
official publications of Commission rules and
regulations, contact:
Superintendent of Documents
Government Printing Office
Washington DC 20402-9325
For copies of SEC forms and recent SEC releases:
Publications Section
U.S. Securities and Exchange Commission
450 Fifth Street N.W.
Washington, D.C. 20549-0019
Telephone: (202)942-4046
Other useful addresses, telephone numbers, Web sites
and e-mail:
SEC's World Wide Web site:
http://www.sec.gov/
SEC Office of Small Business
SEC Small Business Ombudsman
U.S. Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-0304
Telephone: (202) 942-2950
E-mail addresses:
mailto:%20e-prospectus@sec.gov
mailto:%20help@sec.gov
North American Securities Administrators
Association
10 "G" Street, N.E., Suite 710
Washington, D.C. 20002
(202) 737-0900
NASAA's World Wide Web site:
http://www.sec.gov/cgi-bin/goodbye.cgi?www.nasaa.org
SBA's World Wide Web site:
http://www.sec.gov/cgi-bin/goodbye.cgi?www.sba.gov
ACE-Net World Wide Web site:
http://www.sec.gov/cgi-bin/goodbye.cgi?www.ace-net.org
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If you have any suggestions about how we can make this
booklet more useful, please contact the SEC staff at the
mailing address, phone number or e-mail address noted
above.
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