Raising capital can provide an Arizona business with the resources needed to expand, hire, develop new products, or pursue other opportunities. But raising money from investors is also a legal process that can create significant securities-law obligations.
Whether a business is considering a private placement, preparing a Private Placement Memorandum (PPM), or exploring another capital-raising structure, understanding the applicable requirements before approaching investors can help reduce unnecessary legal risk.
Determine How The Offering Works
The structure of a capital raise can affect the legal requirements that apply to the transaction.
Businesses should consider how the investment is being structured, what investors are receiving, and how the offering will be conducted. An ownership interest, note, or other investment arrangement may raise securities-law considerations depending on the circumstances.
Determining the structure early can help establish the appropriate legal framework for the offering.
Review Available Exemptions
Not every securities offering is required to go through the same registration process. Certain offerings may qualify for exemptions from registration if specific requirements are satisfied.
Businesses should determine which exemption may apply and understand the conditions that must be met. Choosing an exemption is not simply a matter of selecting the most convenient option; ongoing compliance with its requirements may be necessary.
Provide Appropriate Disclosures
Investors generally need sufficient information to evaluate an investment opportunity.
Depending on the offering, disclosures may address the company’s business, financial condition, risks, management, use of proceeds, ownership structure, and other material information.
A PPM can be an important tool for organizing disclosures in certain private offerings, but its contents should be tailored to the specific transaction and business.
Confirm Investor Requirements
Some capital-raising structures place requirements or limitations on who may participate.
Businesses should understand the eligibility requirements that apply to their chosen offering and maintain appropriate documentation regarding investors and the transaction.
Failing to properly address investor requirements can create compliance concerns that may continue long after the capital has been raised.
Document The Capital Raise
A successful funding round should be supported by appropriate documentation.
Depending on the transaction, this may include offering materials, subscription agreements, investor questionnaires, corporate approvals, securities filings, and other records.
Keeping organized records can help establish what was offered, what investors were told, and how the transaction was completed.
Plan Before Accepting Investment
Capital raising should not begin with investor outreach alone. Arizona businesses should first understand the legal structure of the offering, applicable securities requirements, disclosure obligations, and documentation needed to complete the transaction properly.
Early legal planning can help businesses avoid having to restructure an offering after it has already begun.
Merchant Law Firm assists Arizona businesses with securities matters, private placements, PPMs, capital formation, and related corporate legal issues. A well-planned capital raise can help businesses pursue growth while establishing a stronger legal foundation for the investment.
