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Can I offer equity to investors without violating securities laws in Alabama? What are the requirements?

Offering Equity to Investors in Alabama

If you plan to offer equity to investors in Alabama, you must comply with the state’s securities laws. The Alabama Securities Act prohibits any person from directly or indirectly offering or selling securities unless the securities are registered or exempt from registration [1.1].

Exempt Transactions

The Alabama Securities Act provides exemptions for certain transactions, including:

  • Any isolated nonissuer transaction [1.2]
  • Any nonissuer transaction in an outstanding security by a registered dealer if certain conditions are met [1.2]
  • Any nonissuer transaction effected by or through a registered dealer pursuant to an unsolicited order or offer to buy [1.2]
  • Any transaction between the issuer or other person on whose behalf the offering is made and an underwriter or among underwriters [1.2]
  • Any transaction in a bond or other evidence of indebtedness secured by a real or chattel mortgage or deed of trust or by an agreement for the sale of real estate or chattels if the entire mortgage, deed of trust, or agreement, together with all the bonds or other evidences of indebtedness secured thereby, is offered and sold as a unit [1.2]
  • Any sale or the offering for sale of any security at any judicial, executor’s, administrator’s, guardian, or conservator’s sale, or at any sale by a receiver or trustee in insolvency or bankruptcy [1.2]
  • Any transaction executed by a bona fide pledge without any purpose of evading the Alabama Securities Act [1.2]
  • Any offer or sale to certain financial institutions or institutional buyers, or to a dealer [1.2]
  • Any transaction which is part of an issue of which there are no more than 10 purchasers [other than those designated in subdivision (a)(8) of this section] wherever located, of securities from the issuer during any period of 12 consecutive months if certain conditions are met [1.2]
  • Any transaction pursuant to an offer to existing security holders of the issuer [1.2]
  • Any offer, but not a sale, of a security for which registration statements have been filed under both the Alabama Securities Act and the Securities Act of 1933 if certain conditions are met [1.2]
  • The issuance of any stock dividend, whether the corporation distributing the dividend is the issuer of the stock or not, if nothing of value is given by stockholders for the distribution other than the surrender of a right to a cash dividend where the stockholder can elect to take a dividend in cash or stock [1.2]
  • Any transaction incident to a right of conversion or a statutory or judicially approved reclassification, recapitalization, reorganization, quasi-reorganization, stock split, reverse stock split, merger, consolidation, or sale of assets [1.2]
  • An offering of securities conducted solely in Alabama to residents of Alabama if certain conditions are met [1.2]

Intrastate Offerings

If you plan to offer equity to investors in Alabama, you may be able to do so under the exemption for intrastate offerings [1.2]. To qualify for this exemption, the offering must meet the following requirements:

  • The issuer of the security shall be a for-profit corporation or other for-profit entity, or business cooperative with its principal place of business in Alabama and registered with the Secretary of State [1.2]
  • The transaction shall meet the requirements of the federal exemption for intrastate offerings in section 3(a)(11) of the Securities Act of 1933, 15 U.S.C. § 77c(a)(11), and SEC Rule 147 [1.2]
  • Securities must be offered to and sold only to persons who are residents of Alabama at the time of purchase. Prior to any offer or sale pursuant to this exemption, the seller shall obtain documentary evidence from each prospective purchaser that provides the seller with a reasonable basis to believe that such investor is a resident of Alabama [1.2]
  • The sum of all cash and other consideration to be received for all sales of the security in reliance upon this exemption shall not exceed one million dollars ($1,000,000), less the aggregate amount received for all sales of securities by the issuer within the 12 months before the first offer or sale made in reliance upon this exemption [1.2]
  • The issuer shall not accept more than five thousand dollars ($5,000) from any single purchaser unless the purchaser is an accredited investor as defined by Rule 501 SEC Regulation D, 17 C.F.R. 230.501 [1.2]
  • The issuer must reasonably believe that all purchasers of securities are purchasing for investment and not for sale in connection with a distribution of the security [1.2]
  • A commission or remuneration shall not be paid or given, directly or indirectly, for any person’s participation in the offer or sale of securities for the issuer unless the person is registered as a broker-dealer or agent under the Alabama Securities Act [1.2]
  • All funds received from investors shall be deposited into a bank or depository institution authorized to do business in Alabama, and all the funds shall be used in accordance with representations made to investors [1.2]
  • Not less than 10 days prior to the use of any general solicitation or within 15 days after the first sale of the security pursuant to this exemption [1.2]

Conclusion

In summary, you can offer equity to investors in Alabama if you comply with the state’s securities laws. The Alabama Securities Act provides exemptions for certain transactions, including the exemption for intrastate offerings. If you plan to offer equity to investors under this exemption, you must meet certain requirements, including offering securities only to residents of Alabama and not accepting more than $5,000 from any single purchaser unless the purchaser is an accredited investor.

Source(s):
Jurisdiction

Alabama