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

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

Exemption from KRS 292.330 to 292.390 for offer or sale of security after January 1, 2015 – Conditions – Application of KRS 292.410(3) and (4).

KYRS 292.411

Kentucky law provides an exemption from KRS 292.330 to 292.390 for the offer or sale of a security after July 1, 2015, by the issuer of the security if all of the following conditions are met [1.1]:

  • The issuer of the security is:
  • A business entity organized under the laws of Kentucky;
  • Authorized to do business in Kentucky; and
  • Doing business in Kentucky in accordance with the Securities Act of 1933 Rule 17 C.F.R. sec. 230.147(c).
  • The transaction meets the requirement of the federal exemption for intrastate offerings in the Securities Act of 1933 Rules, 15 U.S.C. sec. 77c(a)(11) and 17 C.F.R. sec. 230.147.
  • The aggregate offering price of the securities complies with the following criteria:
  • If the issuer has not undergone and made available to each prospective purchaser and the commissioner the opinion letter and applicable documentation resulting from a financial audit of its most recently completed fiscal year that complies with generally accepted accounting principles, the sum of all cash, and other consideration to be received for all sales of securities in reliance on this exemption, shall not exceed one million dollars ($1,000,000) in a twelve (12) month period, less the aggregate amount received for all sales of securities by the issuer that do not take place prior to the six (6) month period immediately preceding or after the six (6) month period immediately following any offers or sales made in reliance on this exemption.
  • If the issuer has undergone and made available to each prospective purchaser and the commissioner the opinion letter and applicable documentation resulting from a financial audit of its most recently completed fiscal year that complies with generally accepted accounting principles, the sum of all cash, and other consideration to be received for all sales of securities in reliance on this exemption, shall not exceed two million dollars ($2,000,000) in a twelve (12) month period, less the aggregate amount received for all sales of securities by the issuer that do not take place prior to the six (6) month period immediately preceding or after the six (6) month period immediately following any offers or sales made in reliance on this exemption.
  • In 2020, and every fifth year thereafter, the commissioner shall, by rule, cumulatively adjust the dollar limitations provided in this paragraph to reflect the change in the Consumer Price Index for All Urban Consumers, published by the federal Bureau of Labor Statistics, rounding each dollar limitation to the nearest fifty thousand dollars ($50,000).
  • An offer or sale to an officer, director, partner, trustee, or individual occupying similar status or performing similar functions with respect to the issuer or to a person owning ten percent (10%) or more of the outstanding shares of any class or classes of securities of the issuer shall not count toward the monetary limitations set forth in this paragraph.
  • All sales that are part of the same offering, made in reliance on this exemption, meet all of the terms and conditions of this exemption.

Additionally, the issuer must comply with several other requirements, including providing a disclosure document to each prospective purchaser, obtaining evidence that the prospective purchaser is a resident of Kentucky, and requiring each purchaser to certify in writing or electronically that they understand the risks involved [1.1].

It is important to note that these requirements are specific to Kentucky law and that other federal and state securities laws may also apply. It is recommended that you consult with a legal professional to ensure compliance with all applicable laws and regulations.

Furthermore, an “equity security” is defined as any stock or similar security, or any security convertible into such a security, or carrying any warrant or right to subscribe to or purchase such a security, or any other security which the commissioner deems to be of similar nature and considers necessary or appropriate [2.1].

Lastly, the Angel Investor Program in Kentucky has qualification requirements for small businesses, investors, and investments to be qualified for participation. To be certified as a qualified small business, the business must demonstrate that it is an entity with a net worth of ten million dollars ($10,000,000) or less, actively and principally engaged in a qualified activity within the Commonwealth, has no more than one hundred (100) full-time employees, has more than fifty percent (50%) of its assets, operations, and employees located in the Commonwealth, and has at no time received an aggregate amount of qualified investments that has allowed qualified investors to receive more than one million dollars ($1,000,000) in angel investor credits. To be certified as a qualified investor, an individual investor must qualify as an accredited investor pursuant to Regulation D of the United States Securities and Exchange Commission, not hold in excess of twenty percent (20%) ownership interest in, and is not employed by, the qualified small business prior to making the qualified investment in that qualified small business, and seek a financial return from the investment made in the qualified small business. The investment must also meet certain requirements to be certified as a qualified investment [3.1].

It is important to note that these additional documents provide context and information related to equity offerings and investments in Kentucky, but they may not be directly applicable to the specific circumstances of your query. It is recommended that you consult with a legal professional to ensure compliance with all applicable laws and regulations.

Source(s):
Jurisdiction

Kentucky