Raising Money Without Getting In Legal Hot Water
Some fundamentals of capital raising
As a lawyer that helps a lot of companies raise money I see a lot of stuff. In fact I see many of the same issues over and over again.
I thought I would take some time and write down the basics of raising money for you the business owner or leader who might be getting involved in the capital raising process. I’ve geared this guide to US businesses or companies that might be making offering to US investors. And while I can’t give you legal advice in this article I can help familiarize you with some common terms and issues so that you can speak more knowledgeablely with the lawyer you choose to work with.
We start with the basics which is that the sale of interests in companies that are connected to the profits of the enterprise are considered “securities.” The key in determining what is a security and what is now is the “Howey Test” which was set by the U.S. Supreme Court in the 1946 case of SEC vs. Howey.
So if someone is investing in your business and taking a payment based on the future profits you probably have a security (at least assume that until an experienced lawyer confirms otherwise). And that brings a whole new layer of regulations.
