Legal Question in Securities Law in California

Re: Regulation D

There is an old saying in the securities business that there are three kinds of stock issuances - registered, exempt, and illegal.

You want to make sure that your issuance falls into the second category. Both registration and illegality are too expensive, each in its own way.

Regulation D covers a group of somewhat similar exemption-from-registration rules: Rule 504, Rule 505 and Rule 506. Many new businesses raising money from the general public find using one of these three Rules provides the exemption that fits their needs. This could be the case for you as well.

There may, however, be exemptions that fit your proposed issuance better and which impose fewer requirements and restrictions upon your new company.

A new company with ten employees as well as two founders should be able to afford the services of a business lawyer who can interview you on the factors that govern the eligibility of an issuer to qualify for exemption under various available state and federal statutory exemption and safe harbor statutes and rules.

Also, your mention of "filing for" an exemption may show a bit of a misunderstanding. One "relies upon" an exemption more than one files for it.....there may be documents that must be filed in the process, but the main thing the issuer must do is understand why a particular registration may be exempt under, say, Reg. D Rule 505 but not exempt under Reg. D Rules 504 or 506, then make sure it is treated as a Rule 505 issuance throughout the process.

Finally, an incomplete list of the factors that may affect the availability of a particular exemption for a particular securities issue - almost none of which are discussed in your question - includes the dollar amount to be raised, whether the investors are in more than one state, number of issuees, whether they are high-net-worth, sophisticated, or "insiders," whether advertising was used to attract them,

the availability of audited financial statements, and so forth.