All Forum Posts by: Jillian Sidoti

I used to have a client in Texas. He used to do joint ventures too until the Texas Board of Securities came knocking. 

The rules are not easy, but for everyone reading this post, let's make them a little more simple: 

If investors invest money, expect profits, there are more than ONE of them, and you are pretty much in charge, you are selling securities and you need to follow the law. 

At the end of the day, you're required to make proper disclosure to the investors. This means telling them all of the material facts and disclosing the risks. 

Securities attorneys are expensive. It's true. It's a specialized line of work that takes certain skill. We, generally speaking, charge between $5k and $15k and we are inexpensive for the experience we have. I get that it seems silly to spend this kind of money with two or three investors you consider close friends and family members. Heck,  I take leftover penicillin to avoid paying a doctor when I think I have strep throat - the risk is pretty low and I save some cash. However, it would be stupid of me to do my own appendectomy. 

Hey @Austin Fruechting - I hear what you are saying, however, you didn't mention the use of a securities attorney. I am sure, that based on the pure reading of the law, they are absolutely correct in their guidance and they are probably great corporate and real estate attorneys. However, I do not want this advice to stand out as the end-all-be-all of advice. 

Based on my extensive experience of dealing with both state securities boards and the SEC and clients who attempted to skirt the law, when an investor was "wronged," these entities saw the situation quite differently. Remember, the SEC and the state securities boards are used to enforcing the law, particularly the law that applies to their interests. So therefore, they will do what they can to prove you otherwise and that their law applies. 

I am certainly not trying to give you a hard time, but I don't want to give others reading this thread that this method is a good idea. 

At the end of the day, you will probably be fine and nothing will happen. However, it's the poor guy who tries this and then gets caught that will ultimately pay the price.

Hi all - If you are taking in money, you are the promoter, and the investors are expecting profits, artificial "management" by the investors will be seen through by the SEC and state securities boards. 

I know a company that tried just this artificial form of involvement and it didn't end well from a securities perspective. I would advise against trying to skirt securities laws. I hope this helps.

Here is the position our firm takes: 

Considering that these filings can be viewed as onerous and expensive, it is not a surprise that some NY attorneys have adopted a position that no blue sky filing or fee is required. It is certainly supported by the 2002 position paper prepared by the Committee on Securities Regulation of the New York State Bar Association. However, this position paper has not been accepted by the Office of the Attorney General of New York.

Here's the position paper: http://www.nysba.org/Sections/Business/Committees/Securities_Regulation_Committee/Position_Paper_on_Private_Offering_Exemptions_and_Exclusions.html

Hi @Greg Gallucci

Are you planning on securing the note? Where will the note be located? Is it just one investor (not fractionalized?) MOST states have a self-executing exemption that allows you to take money under a secured note without further action. The only states that don't allow this are Alaska, Arizona, Arkansas, Florida, Kentucky, Montana. 

10 units is pretty small and you can probably get just one investor. If you can't get just one investor, and need to have more than one, I might have a couple of ideas for you that you can PM me about. I hesitate writing them here without knowing the full extent and I don't want anyone to misconstrue my advice. 

I will tell you, at the end of the day, you can probably get this done with an operating agreement and well done subscription agreement if you don't do the note model. 

Sam, how can I help you? What are you looking to do? 

Thanks, Michael!

1. You cannot pay a commission to anyone (including yourself) for the sale of securities if you do not have a securities license (either SERIES 7 or 22.) 

2. If you do have someone in the company who is being compensated, in some fashion other than a commission, for the sale of a security, then they MUST have an additional role (such as ongoing investor relations role, marketing, management, etc.) 

3.  Paying a finders fee must be for a "mere introduction." In other words, no active selling. Often this may be paid to CPAs, attorneys, etc. But those people cannot actively sell the security. 

4. This is NOT something to play too much with. This is a very precarious area of the law. The SEC and FINRA will make your life miserable if you pay the wrong people for raising money or if you inappropriately pay yourself for raising money. Also, if you are paying any money out it MUST be disclosed. 

FINRA, more so than the SEC, is a nasty organization and you do not want to enter their territory inadvertently.

Let me know if you have further questions. 

@Alexander Felice - could I interview you for my upcoming book? 

Hey @Cale Snyder - how much money are you looking to raise? Regardless, when you go to a crowdfunding site you need to come with your offer already put together - PPM, operating agreement, etc. The CF platforms normally won't take you seriously without that. 

Hi - do you have one investor or multiple investors? If you have multiple investors, then this is a security and you need to consider that. I can tell you horror stories, but I will refrain. 

So what to do? It can get costly to have an attorney draft a document for you - I get it. However, a securities document is highly specialized, so although @Shawn Q.'s advice is good in some circumstances, I don't recommend it in this circumstance. Specifically, long ago, I learned to NEVER "review" a client drafted document - it always took longer than drafting it myself and wasn't worth the liability. Just keep that in mind. It is just so specific. 

I am right now working on a software that will solve this problem for smaller deals.  I am not sure when it will be ready and it has been a lot of work so far. It is just so specific - you need to say the risks, the disclosure, the deal terms, etc. 

The best advice I can give you right now: spend the money upfront on an attorney to write a semi-template for your specific needs that you can use over and over again. 

Good luck! I know it's rough out there.