| It was this concern that prompted Regulation D, a | | | | DPO since an Investment Banker does usually not |
| special exemption that became effective April 15, | | | | underwrite the offering. A SCOR offering is an |
| 1982. It's not just another exemption, but rather | | | | ideal format for executing a limited Internet DPO. |
| one of the key exemptions for small business | | | | Think of a SCOR offering as a quasi-public private |
| that want to raise money by selling stock to the | | | | offering. |
| general public. It is also considered a form of | | | | A SCOR candidate may raise as much as $1 |
| taking a company public without the burden and | | | | million within a 12-month period with a minimum |
| expenses of a full registration process with the | | | | stock price of $5. Typically, the prospective |
| SEC such as in a traditional Initial Public Offering. | | | | SCOR candidate will set a minimum amount of |
| Regulation D consists of six basic rules. The first | | | | capital to be raised to ensure that sufficient funds |
| three are simply basic rules; they are concerned | | | | will be available for growth and development |
| with definitions, conditions, and notification. Rule | | | | before any of the funds are accessible for |
| 501 covers the definitions of the various terms | | | | company use. |
| used in the rules. Rule 502 sets forth the | | | | While a SCOR offering does not contain the |
| conditions, limitations, and information | | | | substantial costs usually associated with larger |
| requirements for the exemptions in rules 504, | | | | public offerings, it is a prime candidate for an |
| 505, and 506. Rule 503 contains the SEC | | | | Internet DPO (On-line Direct Public Offering), which |
| notification requirements. The last three rules deal | | | | typically costs much less and provides a small |
| with the specifics of raising money. Rule 504 | | | | company with an effective means by which to |
| generally pertains to securities sales up to $1 | | | | raise capital. The filing, which consists of a form |
| million. Rule 505 applies to offering from $1 million | | | | called Form U-7, is exempted from the provisions |
| to $5 million. Rule 506 is for securities offerings | | | | of the SEC Act of 1933 under Regulation D, which |
| exceeding $5 million. | | | | means that the DPO candidate will not have to file |
| Regulation D contains the type of exemptions | | | | a full registration statement with the SEC. |
| that many small businesspersons have been | | | | However, as with any public company, compliance |
| looking for. These exemptions can easily be used | | | | with antifraud and personal liability provisions of |
| in private placements or "limited public offerings". | | | | the SEC Act of 1933 is a requirement. |
| Thus, a Regulation D private placement document, | | | | SEC Filing (U-7) |
| better known as the Private Placement | | | | DPO candidates are required to complete and file |
| Memorandum, has been regarded as one of the | | | | a FORM U-7 that has been designed with idea in |
| most workable exemptions for small offerings. | | | | mind that non- securities attorney can complete it; |
| While Regulation D offerings can provide a capital | | | | nevertheless, it will most likely require expert |
| formation solution for a small business (the good | | | | assistance. Furthermore, in some cases, 2 years |
| news), it does have some legal limitations (the not | | | | of audited financial statements are required and |
| so good news). There are strict limitations placed | | | | should be included with the Form U-7 filing. |
| how the solicitation process is done on these | | | | Blue Sky; State Filing (SCOR) |
| stock sales (securities) to the public as well as | | | | Regulations at both federal and state levels must |
| suitability standards that are imposed on the type | | | | be complied within a SCOR-based DPO as well as |
| of investors. These limitations drastically reduce | | | | with any IPO. The State regulations are called Blue |
| the number of private placements that are | | | | Sky laws. Blue Sky laws were designed to |
| successful. A Regulation "A" offering (another | | | | protect investors from "unscrupulous" issuers of |
| exemption) has a higher probability of success | | | | stock. Since its inception in 1987, SCOR filings |
| based on a more dynamic SEC exemption rule. | | | | have been adopted in 42 states. Some states |
| This Exemption will be discussed in future articles. | | | | may require minimum amounts to be raised |
| SCOR | | | | before the DPO candidate may access the raised |
| The Small Corporate Offering Registration, better | | | | capital. |
| known as SCOR, (falls under Regulation D) is | | | | Stay tuned for more information on this topic and |
| designed to assist small companies in their | | | | further general articles on capital raising |
| capitalization by issuing stock directly to the public. | | | | alternatives for small business. |
| This process is called a Direct Public Offering or | | | | |