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

To offer equity to investors in Arkansas, you must comply with the Arkansas Securities Act. Under ARCO 23-42-501, it is unlawful to offer or sell any security in Arkansas unless it is registered under the Arkansas Securities Act, exempted under § 23-42-503 or § 23-42-504, or it is a covered security.

Requirements for Offering Equity

To offer equity to investors in Arkansas, you must register the security under the Arkansas Securities Act or qualify for an exemption. If the security is a covered security, you may be required to file a notice filing with the Securities Commissioner.

Under ARCO 23-42-507, it is unlawful to employ any device, scheme, or artifice to defraud, make any untrue statement of a material fact, or engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person in connection with the offer, sale, or purchase of any security.

However, there is an equity investment incentive tax credit available in Arkansas under ARCO 15-4-3303 and ARCO 15-4-3304. Eligibility for the equity investment incentive tax credit is limited to investments in targeted businesses or a business that receives assistance in the form of equity investments from capital investment funds that target early-stage businesses and start-up businesses. To qualify for the equity investment incentive tax credit, a business must sign an equity investment incentive agreement with the Arkansas Economic Development Commission and meet certain conditions. Only cash investments qualify for the equity investment incentive tax credit, including the initial principal amount of a qualifying convertible financing structure if the convertible financing structure is required to be converted to equity by the business receiving the investment no later than five years from the date the convertible financing structure was consummated.

Conclusion

To offer equity to investors in Arkansas, you must comply with the Arkansas Securities Act. You must register the security or qualify for an exemption. If the security is a covered security, you may be required to file a notice filing with the Securities Commissioner. It is also important to avoid any fraudulent or deceitful practices in connection with the offer, sale, or purchase of the security. Additionally, there is an equity investment incentive tax credit available in Arkansas for eligible businesses under certain conditions.

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Source(s):
Jurisdiction

Arkansas