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

To offer equity to investors without violating securities laws in South Carolina, you must meet the requirements for venture capital investment and be registered as an investment adviser or broker-dealer, or be exempt from registration [1.1][2.1][2.2][2.3]. The requirements for venture capital investment include:

  • No investment by an investor in any one investment may exceed five million dollars or fifteen percent of the committed capital of the investor, whichever is less.
  • An investor must agree to invest at least an amount equal to the designated investor group’s capital commitment to that investor in South Carolina-based companies.
  • When selecting investors with which to place venture capital investments, each designated investor group shall give preference to investors that, together with their affiliates, have on or before the date of the designated investor group’s capital commitment, aggregate capital commitments of at least three times the amount of the designated investor group’s capital commitment [1.1].
  • Investors must develop a repayment plan based on expected liquidity events of its portfolio investments. All repayments must occur within ten years, subject to extension as described in Section 11-45-30(11) [1.1].

If you are an investment adviser or broker-dealer, you must be registered under the South Carolina Uniform Securities Act or be exempt from registration [2.1][2.2]. Exemptions from registration for investment advisers and agents include:

  • A person without a place of business in South Carolina that is registered under the securities act of the State in which the person has its principal place of business may be exempt from registration if its only clients in South Carolina are federal covered investment advisers, investment advisers registered under this chapter, or broker-dealers registered under this chapter [2.2].
  • An individual who represents an issuer with respect to an offer or sale of the issuer’s own securities or those of the issuer’s parent or any of the issuer’s subsidiaries, and who is not compensated in connection with the individual’s participation by the payment of commissions or other remuneration based, directly or indirectly, on transactions in those securities, may be exempt from registration as an agent [2.2].

Therefore, to offer equity to investors without violating securities laws in South Carolina, you must ensure that you meet the requirements for venture capital investment and that you are registered as an investment adviser or broker-dealer, or are exempt from registration [1.1][2.1][2.2][2.3].

Source(s):
Jurisdiction

South Carolina