Some frequently asked questions the experienced attorneys at San Diego Corporate Law are asked revolve around 25102(f) filings for California Limited Partnerships.

A Limited Offering Exemption Notice, often referred to as a 25102(f) filing after California Corporations Code Section 25102(f) which provides for the Limited Offering Exemption, is a critical component for compliance when a California Limited Partnership issues securities. Under Section 25102(f) of the California Corporations Code, certain securities offerings are exempt from qualification requirements, provided they meet specific conditions.

The Limited Offering Exemption Notice pursuant to California Corporations Code Section 25102(f) is often utilized by California Limited Partnerships for the issuance of general partnership interests and limited partnership interests. The filing process is designed to streamline California corporate securities law compliance while maintaining transparency and regulatory oversight. Understanding the requirements and steps involved in a 25102(f) filing is essential for ensuring legal and efficient issuance of the securities of a California Limited Partnership. This article will provide an overview of the filing, its importance, and the guidelines to follow when submitting it.

Executive Summary: Putting the Conclusion First for Busy General Partners

When is Compliance with California Securities Laws and Regulations Required?

Every securities issuance in California must comply with qualification rules or meet exemption requirements. Filing with the Department of Financial Protection and Innovation is either necessary for qualification or required under certain exemptions, such as the Limited Offering Exemption provided by California Corporations Code Section 25102(f).

To Whom May Shares of a California Limited Partnership Be Issued Under California Corporations Code Section 25102(f)?

The buyers of the securities subject to the Limited Offering Exemption must be limited to a specific group of individuals or entities. Under the 25102(f) exemption, purchasers often include (i) accredited investors as defined by federal securities laws; (ii) general partners and limited partners of the California Limited Partnership; or (iii) individuals with a sufficient pre-existing relationship with the California Limited Partnership that assures their knowledge and understanding of the investment risks.

Contact San Diego Corporate Law for Expert Assistance with Your Limited Offering Exemption Notice Filings

California General Limited Partnerships should work with an experienced corporate attorney to evaluate their specific circumstances and ensure proper compliance with California securities laws and regulations. The experienced attorneys at San Diego Corporate Law are ready to guide you through the Limited Offering Exemption Notice filing process. Contact us today to ensure your filing is accurate, compliant, and tailored to your needs.

Requirement to Qualify or Exempt from Qualification Every Issuance of Securities in California

Under California law, every offer and sale of securities of a California Limited Partnership must either be qualified (the California term for registered) or exempt from qualification before issuance. This requirement is intended to protect investors and ensure compliance with state regulations governing securities transactions. Understanding the specific criteria for qualification or exemption is crucial for corporations to avoid penalties and maintain proper legal standing.

California Limited Partnerships must carefully evaluate every issuance of equity and debt instruments to determine if such issuance is a security and decide whether qualification is the appropriate path to legally issuing the securities in California or if an exemption from the qualification is available.

What Does Qualification Mean for California Securities?

“Qualification” is the California term used to describe registration of securities. To qualify an issuance of securities, a California Limited Partnership must file an application with the California Department of Financial Protection and Innovation. The California Department of Financial Protection and Innovation reviews the filing to ensure compliance with applicable regulations and to verify that the offering presents fair terms to potential investors. A successful qualification results in approval, granting the company the ability to issue securities legally in the state.

The filing fee for applying to qualify a security for issuance under California Securities laws is typically based on the value of the securities to be offered. According to the California Corporations Code, the minimum filing fee is $200, while the maximum fee is capped at $2,500. Applicants should refer to California Corporations Code Section 25608 for detailed information on how these fees are calculated.

In addition to the required filing fee, the qualification process involves (i) preparing the appropriate qualification application; and (ii) including supporting documents such as a copy of the offering memorandum, financial statements, and any additional disclosures required by the California Corporations Code.

Exemptions from Qualification Under California Securities Laws

Under California law, several exemptions from qualification are available to California Limited Partnerships, allowing them to issue securities without undergoing the full qualification process. These California exemptions include, without limitation:

Private Placement Exemption

This exemption applies to offerings made to a limited number of investors, typically not exceeding 35 individuals, and excludes general public solicitation.

Institutional Investor Exemption

Securities sold directly to qualified institutional buyers, such as banks or insurance companies, may qualify for this exemption.

Small Offering Exemption

Certain offerings with a total value below a specified threshold can be exempt if they meet state criteria.

Intrastate Offering Exemption

Securities issued only to residents within California, under specific conditions, may be eligible for this exemption (although this exemption can be very hard to meet if interstate technology such as telephones or electronic mail are used as any part of the securities issuance).

Each exemption has detailed requirements, and companies should carefully review eligibility before proceeding.

The Limited Offering Exemption Provided by California Corporations Code Section 25102(f)

Under California Corporations Code Section 25102(f), certain securities transactions are exempt from the state securities qualification requirements, provided they meet specified criteria. To utilize this exemption, the issuer must file a Limited Offering Exemption Notice notice form (refers to the online filing system of the California Department of Financial Protection and Innovation), commonly referred to as a 25102(f) Notice, with the California Department of Financial Protection and Innovation. The Limited Offering Exemption is designed for private offerings, particularly in situations where California Limited Partnerships sell securities to specific parties such as general partners and limited partners or other insiders rather than through a public offering.

While the 25102(f) exemption offers significant advantages, it is subject to strict compliance standards, including procedural filing requirements, and restrictions on the type of purchasers to whom the securities are offered.

Applicability of 25102(f) Filings to California Limited Partnerships

A 25102(f) filing becomes relevant when a California Limited Partnership plans to issue a general partnership interest that qualifies as a security under California law or a limited partnership interest (by definition a limited partnership interest is always a security under California securities laws). For example, qualification or an exemption is always required when issuing limited partnership interests, and this filing may be necessary when initial general partnership interests in the California Limited Partnership are issued to founders or when additional general partnership interests are sold to new partners joining the California Limited Partnership which results in one or more of the general partners having a minority or reduced role in management of the California Limited Partnership, in which case the California Limited Partnership must adhere to the securities laws and regulations applicable in California. The Limited Offering Exemption streamlines the process by allowing these transactions to occur without requiring a full qualification of the securities, provided specific conditions are met.

Requirements for a Limited Offering Exemption Under California Corporations Code Section 25102(f)

The Limited Offering Exemption, governed by California Corporations Code Section 25102(f), is a key regulatory provision that simplifies securities transactions for California Limited Partnerships. This exemption facilitates private offerings, allowing California Limited Partnerships to avoid the extensive qualification process for securities, provided they meet specific conditions established by the statute. An overview of the key requirements for utilizing the Limited Offering Exemption under California Corporations Code Section 25102(f) is as follows:

Number of Investors

Sales of the security must not be made to more than thirty-five (35) unaccredited investors (as defined by the Securities Act of 1933 and Securities and Exchange Commission rules for federal exemption).

The number of purchasers referred to above is exclusive of any affiliate of the issuer or any other purchaser who the commissioner designates by rule. Spouses (together with any custodian or trustee acting for the account of their minor children) are counted as one person and a partnership, corporation, or other organization that was not specifically formed for the purpose of purchasing the security offered in reliance upon this exemption, is counted as one person.

Preexisting Personal or Business Relationship

To qualify for the Limited Offering Exemption, (i) the issuer must demonstrate that there is a preexisting personal or business relationship between the purchaser and the California Limited Partnership or any of its controlling persons or partners; or (ii) by reason of their business or financial experience or the business or financial experience of their professional advisors (who are unaffiliated with and who are not compensated by the California Limited Partnership or any affiliate or selling agent of the California Limited Partnership, directly or indirectly) and thus could be reasonably assumed to have the capacity to protect their own interests in connection with the transaction with the California Limited Partnership.

Purchase for Own Account

Each purchaser must represent that the purchaser is purchasing for their own account and the purchaser represents they are not purchasing for resale in connection with any distribution of the security of the California Limited Partnership.

No Public Advertising or Solicitation

The offer and sale of the security is not accomplished by the publication of any advertisement.

Filing a Limited Offering Exemption Notice

The issuer is required to file a Notice of Transaction with the California Department of Financial Protection and Innovation within fifteen (15) days of conducting the first sale or offer of sale. This filing, often referred to as a “Form 25102(f) Notice,” ensures compliance with California securities laws.

Filing a Limited Offering Exemption Notice with the California Department of Financial Protection and Innovation for the Securities Exemption Provided by California Corporations Code Section 25102(f)

Once it is determined that an offering of securities by a California Limited Partnership meets the requirements for a Limited Offering Exemption under California Corporations Code Section 25102(f), filing a Limited Offering Exemption Notice is the final step in ensuring compliance with California securities laws and regulations for the California Limited Offering Exemption under California 25102(f). The following is a summary of filing the Limited Offering Exemption Notice with the California Department of Financial Protection and Innovation:

Timing of the Limited Offering Exemption Notice Filing

California Limited Partnerships must file the Limited Offering Exemption Notice with the California Department of Financial Protection and Innovation no later than fifteen (15) days after the first offer or sale of securities in the offering. Failure to meet this deadline can lead to penalties and may jeopardize the exemption status.

Information to Include in the Limited Offering Exemption Notice Filing

The Limited Offering Exemption Notice filing must include specific details about the offering, such as:

• The name of the California Limited Partnership and its contact information including principal place of business.
• A description of securities sold, including their type and total value.
• The total number of investors involved.
• Certification that the offering qualifies for the exemption provided under Section 25102(f).

Method of Filing the Limited Offering Exemption Notice

The Department of Financial Protection and Innovation requires issuers to submit Limited Offering Exemption Notices electronically via the DOCQNET online portal on the website of the California Department of Financial Protection and Innovation. Mail submissions are generally not accepted.

Limited Offering Exemption Notice Filing Fee

California Limited Partnerships must pay an appropriate filing fee based on the value of the securities sold. This Limited Offering Exemption Notice filing fee is variable as follows:

• $25 filing fee for securities valued $25,000.00 or less;
• $35 filing fee for securities valued between $25,001 and $100,000;
• $50 filing fee for securities valued between $100,001 and $500,000;
• $150 filing fee for securities valued between $500,000 and $1,000,000; or
• $300 filing fee for securities valued over $1,000,000.

Penalties for Non-Compliance with California Securities Laws and Regulations

Non-compliance with California securities laws and regulations can have serious consequences for California Limited Partnerships and individuals involved in securities transactions. The State of California enforces strict measures to protect investors and maintain a fair, transparent securities market. Failing to adhere to qualification and exemption requirements can result in significant penalties, both financial and legal.

With respect to the Limited Offering Exemption provided by California Corporations Code Section 25102(f), the failure to file the Limited Offering Exemption Notice or the failure to file the notice within the time specified by the rule of the commissioner shall, within 15 business days after discovery of the failure to file the notice or after demand by the commissioner, whichever occurs first, file the notice and pay to the commissioner a fee equal to the fee payable had the same transaction been qualified under Section 25110, which at the time of this writing is $2,500.

Neither the filing of the notice nor the failure by the commissioner to comment thereon precludes the commissioner from taking any action that the commissioner deems necessary or appropriate under this division with respect to the offer and sale of the securities, some examples of which are as follows:

Administrative Penalties

The California Department of Financial Protection and Innovation has the authority to impose administrative fines on California Limited Partnerships and related individuals who violate securities laws. These fines can range from thousands to millions of dollars, depending on the severity of the violation. Additionally, the California Department of Financial Protection and Innovation may issue cease-and-desist orders to halt any ongoing illegal activities.

Civil Penalties

Violators may also face civil lawsuits brought by investors or the State of California. Civil liability can include repayment of investor losses, damages, and legal fees. Courts may also require a violator to pay interest on any recovered funds. The financial burden of these penalties can be substantial, especially for smaller California Limited Partnerships.

Criminal Penalties

Some securities violations carry criminal implications, particularly in cases involving fraud or willful misconduct. Individuals found guilty may face imprisonment, substantial fines, or both. Criminal charges often involve collaboration with state or federal law enforcement agencies, underscoring the seriousness of these violations.

Revocation of Exemptions or Registrations

California Limited Partnerships that fail to comply with securities laws may lose their eligibility for exemptions or have their existing qualifications and/or exemptions revoked. This can significantly impact their ability of a California Limited Partnership to conduct future securities offerings in California or elsewhere.

Steps to Ensure Compliance

To avoid penalties, California Limited Partnership issuers must stay informed of all relevant California securities laws and regulations. Utilizing qualified legal counsel, maintaining thorough documentation, and timely filing of required notices, such as the Limited Offering Exemption Notice, are critical best practices. Compliance not only ensures smoother operations but also fosters investor confidence and long-term success.

Understanding and adhering to California securities laws and regulations is essential for California Limited Partnerships. The penalties for non-compliance with California qualification and exemption requirements underscore the importance of diligent regulatory adherence.

Conclusion

Complying with California securities laws is crucial for any California Limited Partnership conducting a private offering in California. For California Limited Partnerships, understanding and utilizing exemptions like 25102(f) can help streamline these transactions while remaining compliant with regulatory requirements.

By adhering to the key conditions outlined above, California Limited Partnerships can confidently utilize the Limited Offering Exemption provided by California Corporations Code Section 25102(f), but California Limited Partnerships are advised to consult with consult with a qualified attorney before engaging in any securities transactions to ensure full compliance and avoid both civil and criminal penalties. By staying compliant with California securities laws and regulations, California Limited Partnerships can protect themselves, their shareholders, officers, and board of directors.

With proper documentation and adherence to exemption filing requirements, California Limited Partnerships can successfully navigate the regulatory landscape, so it is essential for California Limited Partnerships to stay informed about the latest developments in state securities laws and regulations that may affect their operations. This will help them make informed decisions and mitigate potential risks associated with securities issuances.