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

Here are the requirements for offering equity to investors without violating securities laws in California:

Exemptions from Securities Qualification Requirements

California Corporations Code Section 25102 provides exemptions from securities qualification requirements. One such exemption is for offers and sales of securities that meet certain criteria, including:

  • Sales of the security are not made to more than 35 persons, including persons not in California.
  • All purchasers either have a preexisting personal or business relationship with the offeror or any of its partners, officers, directors or controlling persons, or managers, or by reason of their business or financial experience or the business or financial experience of their professional advisers who are unaffiliated with and who are not compensated by the issuer or any affiliate or selling agent of the issuer, directly or indirectly, could be reasonably assumed to have the capacity to protect their own interests in connection with the transaction.
  • Each purchaser represents that the purchaser is purchasing for the purchaser’s own account and not with a view to or for sale in connection with any distribution of the security.
  • The offer and sale of the security is not accomplished by the publication of any advertisement.

Other Requirements

In addition to meeting the criteria for exemption under Section 25102, issuers must also comply with other securities laws and regulations, including:

  • Providing investors with all material information necessary to make an informed investment decision.
  • Registering the securities with the California Department of Financial Protection and Innovation or qualifying for an exemption from registration.
  • Complying with federal securities laws and regulations, including the Securities Act of 1933 and the Securities Exchange Act of 1934.

Issuers may also be exempt from registration under Section 25102.1 of the California Corporations Code if they meet certain requirements, such as filing a notice with the commissioner and paying a notice filing fee [1.2].

It is important to consult with legal counsel to ensure compliance with all applicable securities laws and regulations.

Source(s):
Jurisdiction

California