If your company is seeking to raise operating capital, one option is to offer securities for sale. In simple terms, you sell shares of stock (although there are many forms of “securities”). In general, if your company is offering and selling securities, then there must be filings made, reports and disclosures tendered to both federal and California securities regulatory agencies. Under federal law, registration is made with the Securities and Exchange Commission (“SEC”) pursuant to the Securities Act of 1933. (15 U.S.C. § 77b). Here in the Golden State, securities are regulated by the Securities Regulation Division which is part of the Division of Corporations of the California Department of Business Oversight. Securities in California are governed by the California Securities Act of 1968. (Corp. Code, §§ 25000-25707).

These filings, reports, and disclosures can be time-consuming and expensive to prepare. A less expensive option is to offer and sell securities under what is known as Regulation D. Regulation D provides an exemption from having to file the full list of filings, reports, and disclosures. Regulation D is for small capital raises; up to $5 million under both Rule 504 and Rule 506. However, even under Regulation D, certain disclosures and information must be provided to investors. These are generally called Private Placement Memorandums. If you are considering a private security offering under Regulation D, it is essential to retain an attorney with experience drafting private placement memorandums that are compliant with both federal and California securities laws. In addition to the private placement memorandum, certain forms must be filed and provided to the SEC (and to the California Securities Regulation Division). Again, an experienced San Diego corporate attorney can assist with the filings. If you are planning a Regulation D offering on your own, be careful with your timing.

So, What is EDGAR?

With respect to SEC filings, all entities that are using Regulation D to exempt their offerings/sales must file with the SEC what is called a “Form D.” Form D must be filed electronically through use of the SEC’s EDGAR system. EDGAR is an acronym which stands for “electronic data gathering, analysis and retrieval” system. Like many things-electronic and online, EDGAR requires registration, submission of information and, eventually, a user-ID for access and use of the system.

Why Does This matter?

When using a Regulation D exemption for your small capital raise, you must comply strictly with various deadlines. Form D must be filed within 14 days of the first sale of securities. But it takes time — sometimes up to two days — to get your EDGAR user-ID. As such, a bit of pre-planning is required if you are planning to file the Form yourself. In other words, do not wait until the last minute. There are also strict deadlines under the California regulations. Again, pre-planning and experience is important.

Contact San Diego Corporate Law

For more information, contact attorney Michael Leonard, Esq., of San Diego Corporate Law. Mr. Leonard provides legal services related to business law, private securities offerings/sales, the sale/purchase of a business, and for mergers and acquisitions. Mr. Leonard has been named a “Rising Star” by SuperLawyers.com for four years running. Mr. Leonard can be reached at (858) 483-9200 or via email. Like us on Facebook.

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