Abstract
Raising money for small businesses is not simple – either in the ultimate goal of finding investors or in the process of compliance with federal and state laws governing the offer and sale of securities. Thus, even a simplified discussion of capital formation, as this attempts to achieve, is replete with complex aspects. This paper discusses - the life-cycle of a small business, - choice of entity, - the letter of intent, - the goal of the founders to retain control while also negotiating with investors for cash as equity or debt, - the legal background of capital formation (including a discussion of federal and state laws), - recent (2015) SEC guidance on and establishing a substantive, pre-existing relationship, - a discussion of exemptions from registration under federal and Colorado law (including crowdfunding and general solicitation of accredited investors under Rule 506(c)), and - a discussion of finders and the registration requirement for broker-dealers applicable in this context.This was prepared for a continuing legal education course intended for business and transactional lawyers without a significant amount of experience in the offer and sale of securities.
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