By Jim Verdonik
I'm an attorney
with Ward and Smith PA. I also write a
column about business and law for American Business Journals, have authored
multiple books and teach an eLearning course for entrepreneurs. You can
reach me at JFV@WardandSmith.com or JimV@eLearnSuccess.com. Or you
can check out my eLearning course at www.eLearnSuccess.com
or www.YouTube.com/eLearnSuccess or purchase my books at http://www.amazon.com/Jim-Verdonik/e/B0040GUBRW
What is securities law?
Basically, it’s a search for truth.
But it's not like a hunt for pirate treasure.
You don't find a map and then dig up a big treasure chest
of truth.
The truth is usually more complicated than that.
It usually comes in small bits and pieces.
Sometimes pieces of truth are hidden inside of half-truths
or even inside of lies.
You have to break the pieces apart and separate the truth
from everything else.
But just accumulating a big pile of pieces of truth is
usually fairly worthless.
You have to reassemble the pieces to tell a story people
can understand.
Telling the truth story is the interesting part.
Of course, people often have different opinions about
which part of the truth is more important.
That's why a dozen people telling the same story will tell
it differently even though they are all telling the truth.
And, of course, people sometimes bend the truth for their
own purposes. Even good people are
tempted to do that. People easily
convince themselves something is true because they want it to be true. My job as a securities lawyer is to bring
clients back to reality – to separate desire from fact.
Let's see how we do that in this video, which recreates a
counseling session I had with the CEO of a publicly traded company in which we
explored the dark caves of untruth before returning to the bright light of the
truth.
So, what is the truth?
Telling the truth is different than not lying. Telling the truth means you give people the
important facts they need to understand what you are telling them. That means you can't mislead people by
showing them part of the picture and knowing that they will probably
inaccurately draw the other half of the picture.
How do you tell how much of the picture you need to show
investors?
You have to disclose all "material facts."
What's the difference between material facts and
immaterial facts?
A material fact is a fact that might affects a reasonable
investor's decision whether to buy or sell securities.
That's a fairly loose definition. What's material and not material differs from
one business to another and one industry to another. The same fact might be material to a small
company and not material for a big company.
Of course, nothing you do with Government is as simple as
producing the truth.
Securities laws also require you to jump through a number
of other hoops before you can tell the truth and sell securities. Who you sell too? How many people do you sell to? How you find buyers determines your path to
raising money.
Basically, there are two pathways to selling securities:
·
Registering the securities by filing a registration
statement with the Securities and Exchange Commission is one way. Registration is usually a long expensive
process. Registration is the equivalent
of running a marathon. It takes training
and endurance.
·
Finding an exemption from registration. Doing a private placement is the most common
exemption. There are multiple ways of
doing a private placement. Finding the best
way for your business is like assembling the pieces of a puzzle.
You can explore the ins and outs of private placements and
how you comply with securities laws in this video:
I note that this was written before the SEC released its
rules about crowdfunding. Crowdfunding
rules are supposed to make it easier for people to use the internet to contact lots
of people to make very small investments.
Some people think that only big companies can be publicly
traded. But thousands of small to medium
size businesses are pubic. Many become
public by merging with a public shell company or by registering with the SEC without
an investment banking firm or underwriter.
The primary attraction being a small public company has is
that you can sometimes raise capital in PIPES deals from investors who
specialize in investing in small public companies. Because investors like the liquidity offered
by small public companies, they will often invest at valuations that are two or
three times higher than if your business was not publicly traded.
Being a small public company isn't for everyone. You should look carefully before you
leap. This video can help you decide
whether it makes sense for your business and what you'll have to do to get
there:Some people think securities laws are very complicated, but the complications come from simplicity. Just a few very broad rules cover securities laws. How you apply those simple rules to different businesses is the challenging part.
If you would like to
learn more about securities laws or other issues important to your success, you
can reach me at JFV@WardandSmith.com
or JimV@eLearnSuccess.com. Or you
can check out my eLearning course at www.eLearnSuccess.com
or www.YouTube.com/eLearnSuccess or purchase my books at http://www.amazon.com/Jim-Verdonik/e/B0040GUBRW
Follow @JimVerdonik
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