Business Agreement on Business Startup Act 2012
According to sec. 201 of the Jumpstart Our Business Startups Act (JOBS) Act 2012, under certain conditions issuers may engage in general advertising. The main condition is that the transaction should not amount to a public offering. The regulations issued by the Security Exchange Commission (SEC) provide that in order to qualify for permission of general advertising to accredited investors, the issuer must comply with certain requirements. There are two options given. Thus, the issue may choose to comply with the requirement that as far as offerings are concerned, there should be no more than 35 purchasers of securities (17 CFR 230.506 (b)). Alternatively, the issue may choose to comply with the requirement that offers should made only to accredited investors. Accredited investors are banks, saving and loan associations, brokers and dealers registered pursuant to the Securities Exchange Act of 1934, insurance companies, investment companies and business development companies registered under the Investment Company Act of 1940, small business investment companies licensed under the Small Business Investment Act of 1958, employee benefit plans, companies exempt from taxation (religious, charitable, scientific organizations, private clubs etc), whose assets do not exceed $5,000,000, directors, executives and general partners of the issuer, and any natural person, whose net worth or combined net worth with the spouse exceeds $1,000,000 (17 CFR 230.501). Considering these provisions, we can start advertising to no more than 35 purchasers. Alternatively, we can start advertising exclusively to accredited investors. For instance, we can start advertising to wealthy people, whose net worth is higher than $1,000,000 and small business investment companies.
The steps that should be taken to comply with law depend on what option we chose. If we choose that we the option of making offers to no more than 35 purchasers, then there are no special requirements, except that we must be able to prove, in case if there is more than 35 purchasers, that at the time of offering we reasonably believed that there were no more than 35 purchasers (17 CFR 230.506 (b) (2) (i)). If we choose the option of offering exclusively to accredited investors, then we must take reasonable steps to verify that they are accredited investors. Such steps may include: reviewing the IRS forms, bank statements, brokerage statements, consumer reports of the consumer reporting agencies, obtaining written confirmations from registered brokers, investment advisers registered under the Securities and Exchange Act, licensed attorney and certified public accountants that reasonable steps were taken to verify that purchasers are accredited investors (17 CFR 230.506 (c) (2) (ii)).
The law does not define the period of time in which investors can be approached legally. Hence, virtually one may start approaching investors immediately. However, the steps necessary to comply with law make take time. In our case, how much times is necessary hinges on what option should we choose. If we choose an option to make offers to no more than 35 purchasers, then we must comply with the information requirements. …
