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

Offering Equity to Investors in Pennsylvania

In Pennsylvania, a business corporation may issue shares, option rights, or securities having conversion or option rights, or obligations without first offering them to shareholders of any class or classes [1.3]. However, there are certain restrictions on the transfer of securities of a business corporation that may be imposed by the bylaws or by an agreement among any number of securityholders or among them and the corporation [1.1].

Requirements for Offering Equity to Investors

If you plan to offer equity to investors in Pennsylvania, you must comply with the following requirements:

  1. Securities must be registered or exempt from registration with the Pennsylvania Securities Commission [1.1][2.2].
  2. If you are offering securities to non-accredited investors, you must comply with the requirements of Regulation Crowdfunding [1.1].
  3. You must comply with federal securities laws, including the Securities Act of 1933 and the Securities Exchange Act of 1934 [1.1].

Consequences of Violating Securities Laws

Unauthorized securities may be declared void in Pennsylvania. In addition to any other penalty provided in this part for any violation of this chapter, the commission, after due consideration of the public interest, may declare void any securities issued, or any assumption of securities made in violation of this chapter. Any such declaration shall not be construed as a bar to the recovery, by an innocent holder-for-value of such securities, of any losses sustained by reason of the wrongful acts of the issuing or assuming public utility [2.1].

Conclusion

In summary, a business corporation in Pennsylvania may issue shares, option rights, or securities having conversion or option rights, or obligations without first offering them to shareholders of any class or classes. However, if you plan to offer equity to investors, you must comply with the requirements of the Pennsylvania Securities Commission, Regulation Crowdfunding, and federal securities laws. Failure to comply with these requirements may result in the declaration of unauthorized securities as void.

Source(s):
Jurisdiction

Pennsylvania