Legal Question in Business Law in California

Re: Startup investment using internet

First, it's pretty clear that you will be offering to sell securities via this Web site.

It is often said that there are three kinds of securities offerings: registered, exempt, and illegal.

Since you probably can't register these securities for public offering with the Securities and Exchange Commission and teh various state regulatory agencies -- that being a very expensive undertaking in itself -- you will have to rely upon one of the several exemptions from registration contained in the securities laws.

I'd say there are possibly as many as ten exemption formulas; one or more of them would probably fit your proposed offering without being overly limiting. The problem is this: Some of the exemptions limit the size of the offering, e.g., less than $1 million. Some of them forbid advertising -- there goes your proposed use of the Net. Some of them limit the number of investors. Some of them require that the investors be 'sophisticated' or 'qualified' as to investing experience or net worth. Some of the exemptions require the offeror to have audited financial statements--perhaps impossible for a start-up.

Three exemptions worth looking at are found under SEC Regulation D: Sections 504, 505 and 506. Look for explanations of SEC Regulation D and these sections via Google.

Then find a securities lawyer to draft disclosure documents, subscription forms, qualification questionnaires, and an SEC-qualified accountant to do the books.

Raising money from the public is VERY heavily regulated, and taking or trying to take money from investors without full compliance with the many laws and regulations can draw VERY severe civil and criminal penalties.

I would expect that preparing to raise $2 million will require your spending at least $25,000 in professional fees before you can take your first dime from investors.

Re: Startup investment using internet

Selling shares in your company is a complicated undertaking and there are many laws that could ensnare you. For general info on raising money for your business, google on "venture capital".