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Securities Laws

Securities Law

If your start-up venture is to grow and achieve your ultimate goals, it will need capital along the way.  These capital infusions will probably come in multiple tranches and bring with them both strategic decisions for founders and real liability with respect to selling equity to investors.  Penwell Law is ready to help you navigate the rigors of raising growth capital while hanging onto as much control and equity as you can.  In addition, we are ready to help you navigate the requirements and hurdles of complying with both federal and state securities laws as you raise capital.

Start-up Capital and Organization Documents

Initially it is your money and maybe that of friends and family at risk.  We can help you get your venture formed and the initial capital raised in compliance with regulatory concerns and the concerns and protections that your initial investors are looking for.  What your organization documents say and how your equity is structured in them will be the critical foundation for future capital raises, so it is important to get them right the first time.

Venture Capital

As your business grows and your business needs more capital, the most likely source of funding is venture capital.  Venture capitalists are professional investors who are savvy and demanding when it comes to their investment.  At Penwell Law, we have extensive experience in dealing with venture capitalists and structuring their investment in a way that allows for future rounds of venture capital investment to be procured.  Venture investments will be heavily negotiated and good venture investors can bring much more to the table than just money, such as technical expertise and business relationships.

Debt and Mezzanine Financing

After one or more rounds of venture financing, your company may be ready for debt or mezzanine financing.  Debt financing can come from investors in the form of notes or from a bank in the form of a credit facility.  Mezzanine financing looks like debt, but has equity features such as conversion rights and warrants that must be considered carefully.  Entrepreneurs must be careful after raising equity, not to saddle the company with interest burdens and conversion features that make long term goals unachievable or extremely dilutive to the founders.  Penwell Law understands the long-term play for founders and how to help them achieve the greatest gain for themselves when they choose to sell their venture or exit the company.

Private Placements

The sale and issuance of any security must either be registered under The Securities Act of 1933 (the “Securities Act”) or be exempt from registration under the Securities Act.  The former offerings are known “public offerings” and the latter as “private placements.”  All of the above forms of raising capital are private placements.

Section 4(2) and Regulation D under the Securities Act

Section 4(2) of the Securities Act provides that privately offered equity securities are exempt from registration under the Securities Act.  Whether securities are deemed to be privately offered depends on a number of factors, like number of investors, sophistication of investors, use of public solicitation to find investors and the nexus between the investors.  Making sure your offering qualifies as exempt from registration is important, because if it doesn’t, you can be subject to civil and criminal penalties in addition to returning funds raised from the offering.  

Regulation D and Regulation A

The Securities and Exchange Commission (the “SEC”) has promulgated a number of safe harbors from the pitfalls of failing to comply with the registration component of the securities laws.  The most common safe harbor is Regulation D and Rules 501 et seq. promulgated thereunder.  Penwell Law has been doing Regulation D compliant offerings for 40 years and is familiar with the many restrictions commanded by Regulation D. 

Regulation A is another safe harbor that has become popular recently because the amount of capital that can be raised under the exemption has been raised from $5 to $75 million.  This particular exemption allows companies to reach out to more unaccredited investors, but has tighter and more defined reporting obligations for the company post-investment.  Penwell Law is versed in conducting Regulation A offerings.

Offering Memo

The first and last line of defense for entrepreneurs who raise capital through a private placement is the offering memo.  The first rule of offering securities through a private placement is giving offerees full and complete disclosure about the offeree and the offering.  That means there can be no material omissions or material misstatements about the offeree or the offering.  Penwell Law has been writing offering memos for 40 years in connection with private placements.

Securities Law Compliance

Federal. All private placements must comply with federal securities laws. For most offerings, this means meeting the restrictions set forth in Regulation D.  Private placements conducted under Regulation D are not subject to SEC review and the offeree only need to submit timely a Form D to the SEC.  Different rules promulgated under Regulation D allow for offerings to an unlimited number of “accredited investors,” up to 35 non-accredited investors and the use of public advertising and solicitation.  It is important to understand the requirements of the different rules so the offeree can have an exempt offering under the applicable rule.  Penwell Law has been doing offerings under Regulation D for as long as it has been in existence and understands the parameters applicable to each exemption. 

State. All private placements must comply with state securities law.   Most states have adopted a uniform reporting requirement under NSMIA, which for the most part only requires that the federal Form D be filed with the respective state securities commission.  Some states, however, still retain other state filing requirements, so it is always necessary to “blue sky” each offering in the applicable states where securities are offered.  Penwell Law has conducted blue sky securities research in most of the 50 states and is conversant with most blue-sky filing requirements.

Public Offerings

Should your company be so fortunate as to “go public” and do a registered offering of securities, Penwell Law can prepare all registration documents including the S-1 Registration statement and clear it with the SEC.  We can also negotiate with underwriters and prepare underwriting agreements and perform all state securities law clearances.

Post-Public Filing Requirements

Going public is the golden ring for most companies because it allows the founders to reap the increase in value that comes with a public offering, provides liquidity in that securities can be freely traded in a public market and gives the company access to the public markets to raise additional capital.  The trade-off is the various reporting requirements that come along with being public.  Since the company’s stock can now be publicly traded, the company is obligated to keep the public markets informed about the company and must comply with a number of reporting obligations such as:

Section 14—Proxy Statements

Every public company must prepare, file with the SEC and submit to its shareholders proxy statements that comply with Section 14 of the Securities Exchange Act of 1934 (the “Exchange Act”).  Penwell Law is experienced in preparing and reviewing proxy statements to ensure compliance with Section 14.

Section 16—Insider Trading

Insiders at all public companies must avoid trading the company’s securities using insider non-public information.  Section 16 of the Exchange Act and regulations promulgated thereunder sets forth the roadmap for compliance.  Penwell Law has worked with management teams to ensure compliance with Section 16.

Forms 3, 4 and 5—Officers, Directors and Certain Shareholders

As a public company, officers, directors and certain large shareholders must complete and submit to the SEC information on Forms 3, 4 and 5 when they engage in certain actions involving the company’s securities.  Penwell Law has advised these persons regarding their obligations to file Forms 3,4 and 5.

Forms 8-K, 10-Q and 10-K—Periodic, Quarterly and Annual Financial Reporting

As a public Company, you will be required to file Form 8-K with the SEC when a material event occurs, Form 10-Q (quarterly financial statements) and Form 10-K (annual financial statements) with the SEC. Penwell Law is experienced in preparing and reviewing all of these forms.

Stock Incentive Plans

Many companies either don’t know or forget that when they put together restricted stock or stock option plans to incentivize employees, they are subject to securities laws and must qualify for an exemption from registration.  Penwell Law has experience in drafting such plans and ensuring that they comply with securities laws.

Contact Penwell Law

Compliance with federal and state securities laws applies to every business venture.  Failure to comply can subject you to civil and criminal penalties and delay or prohibit you from raising additional capital.  It is good advice to do it right from the start.  Penwell Law can help you do just that. Contact us today at or book your free initial consultation here: