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

Based on the information provided in the North Dakota Century Code, there are certain exemptions to the registration requirements for securities offerings. However, it is important to note that offering equity to investors may still be subject to securities laws in North Dakota.

Exemptions to Securities Registration Requirements

The following are some of the exemptions to securities registration requirements in North Dakota:

  1. Securities issued, insured, or guaranteed by the United States, a state, a political subdivision of a state, a public authority, agency, or instrumentality of one or more states, a political subdivision of one or more states, or a person controlled or supervised by and acting as an instrumentality of the United States under authority granted by Congress [1.1].
  2. Securities issued by and representing or that will represent an interest in or a direct obligation of, or be guaranteed by a banking institution organized under the laws of the United States, a member bank of the Federal Reserve System, or a depository institution a substantial portion of the business of which consists or will consist of receiving deposits or share accounts that are insured to the maximum amount authorized by statute by the Federal Deposit Insurance Corporation, the National Credit Union Share Insurance Fund, or a successor authorized by federal law or exercising fiduciary powers that are similar to those permitted for national banks under the authority of the Comptroller of Currency pursuant to section 1 of Public Law 87-722 or issued or guaranteed as to both principal and interest by an international bank of which the United States is a member [1.1].
  3. Securities issued by a building and loan association subject to supervision by an agency of the state of North Dakota, or policy contracts, including variable annuity contracts, of an insurance company subject to supervision by an agency of the state of North Dakota [1.1].
  4. Securities issued or guaranteed by a railroad, other common carrier, public utility, or public utility holding company that is regulated in respect to its rates and charges by the United States or a state, regulated in respect to the issuance or guarantee of the security by the United States, a state, Canada, or a Canadian province or territory, or a public utility holding company registered under the Public Utility Holding Company Act of 1935 or a subsidiary of such a registered holding company within the meaning of that Act [1.1].
  5. Any security issued by any person organized and operated not for private profit but exclusively for religious, educational, benevolent, fraternal, charitable, social, or reformatory purposes, subject to certain conditions [1.1].
  6. Any note, draft, bill of exchange, or bankers’ acceptance which arises out of a current transaction or the proceeds of which have been or are to be used for current transactions, is not the subject of a public offering, is prime quality negotiable commercial paper which has at the time of issuance a definite maturity of not exceeding nine months, is payable in cash only, and is not convertible into and does not carry an option or right to receive payment or any bonus in any other security [1.1].
  7. Securities, other than common stock, providing for a fixed return, which have been outstanding and in the hands of the public for not less than five years and upon which no default has occurred during the five years next preceding the date of sale [1.1].
  8. Securities, including patronage dividends or refunds, issued by any cooperative organized under the statutes of this state [1.1].
  9. An equipment trust certificate with respect to equipment leased or conditionally sold to, a person, if any security issued by the person would be exempt under this section or would be a federal covered security under section 18(b)(1) of the Securities Act of 1933 [1.1].
  10. Any bond, note, or other evidence of debt issued by a holding corporation or limited liability company and secured by collateral consisting of any of the securities described in subsections 4 and 9, if the collateral securities equal in fair value at least one hundred twenty-five percent of the par value of the bonds, notes, or other evidences of debts secured thereby [1.1].
  11. The execution of orders for purchase of securities by a registered broker-dealer provided such broker-dealer acts as agent for the purchaser, has made no solicitation of the order to purchase such securities, has no direct material interest in the sale or distribution of the securities ordered, receives no commission, profit, or other compensation other than the commissions involved in the purchase and sale of the securities and delivery to the purchaser of written confirmation of the order which clearly itemizes the commissions paid to the registered broker-dealer [1.1].
  12. Any security issued, insured, or guaranteed by a foreign government with which the United States currently maintains diplomatic relations, or any of its political subdivisions, if the security is recognized as a valid obligation by the issuer, insurer, or guarantor [1.1].
  13. A federal covered security specified in section 18(b)(1) of the Securities Act of 1933 or by rule adopted under that provision or a security listed or approved for listing on certain stock exchanges or automated quotation systems [1.1].
  14. Securities issued by North Dakota united dues credit trust to members of North Dakota united [1.1].
  15. A security of a foreign issuer that is a margin security defined in regulations or rules adopted by the board of governors of the federal reserve system [1.1].

Requirements for Offering Equity to Investors

If none of the exemptions listed above apply to your situation, you may need to register your securities offering with the North Dakota Securities Department. The registration process typically involves filing a registration statement and providing certain disclosures to potential investors.

Additionally, if you are a publicly traded corporation, any issuance of shares or other securities convertible into or rights exercisable for shares in a transaction or a series of integrated transactions, requires approval of the shareholders if the voting power of the shares that are issued or issuable as a result of the transaction or series of integrated transactions will exceed twenty percent of the voting power of the shares of the corporation which were outstanding immediately before the transaction [5.1].

It is recommended that you consult with a securities attorney to ensure compliance with all applicable securities laws and regulations.

Therefore, it is possible to offer equity to investors without violating securities laws in North Dakota, but it depends on the specific circumstances of the offering and whether any exemptions apply.

Source(s):
Jurisdiction

North Dakota