Legal considerations for raising capital

NOTE: THIS ARTICLE IS FOR INFORMATION PURPOSES ONLY. IT IS NOT INTENDED TO BE CONSIDERED AS LEGAL ADVICE.

There are numerous legal considerations every entrepreneur must face when starting a new business, and raising startup capital is one that can be fraught with danger. Hiring a qualified securities attorney is not a luxury; It is a must for companies looking to raise capital from third parties. Some of the key general considerations are:

o Properly organize the business as a business entity under state law;

o Ensure that the company has issued enough authorized shares of the same type to be offered to investors;

o Ensuring that any existing and potential legal issues are resolved before issuing shares to investors;

o Have an experienced securities attorney review the federal securities laws, as well as the securities laws of any state in which shares may be offered to potential investors, to ensure that the company and its investment offering comply with those laws;

o Ask your attorney to explain in writing the possible personal liabilities of the company’s officers and directors if the company violates any federal or state securities laws by raising capital. The possible penalties can be very serious, from civil fines to jail time;

o Make sure your written investment prospectus contains all required state and federal disclosure language in the appropriate places;

o Your attorney should review the business plan and financial statements for possible false and / or misleading statements; Y

o Get a written opinion from your attorney if your particular investment opportunity should be registered with the appropriate regulatory agencies.