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

To offer equity to investors in Tennessee, you must comply with the securities laws in the state. The Tennessee Code Annotated (T.C.A.) provides regulations for the transfer and registration of shares of a corporation [1.1].

Requirements for Offering Equity

  • The charter, bylaws, an agreement among shareholders, or an agreement between shareholders and the corporation may impose restrictions on the transfer or registration of transfer of shares of the corporation [1.1].
  • A restriction on the transfer or registration of transfer of shares is valid and enforceable against the holder or a transferee of the holder if the restriction is authorized by T.C.A. § 48-16-208 and its existence is noted conspicuously on the front or back of the certificate or is contained in the information statement required by § 48-16-207(b) [1.1].
  • A restriction on the transfer or registration of transfer of shares is authorized to maintain the corporation’s status when it is dependent on the number or identity of its shareholders, to preserve exemptions under federal or state securities law, or for any other reasonable purpose [1.1].
  • A restriction on the transfer or registration of transfer of shares may obligate the shareholder first to offer the corporation or other persons (separately, consecutively, or simultaneously) an opportunity to acquire the restricted shares, obligate the corporation or other persons (separately, consecutively, or simultaneously) to acquire the restricted shares, require the corporation, the holders of any class of its shares, or another person to approve the transfer of the restricted shares, if the requirement is not manifestly unreasonable, or prohibit the transfer of the restricted shares to designated persons or classes of persons, if the prohibition is not manifestly unreasonable [1.1].

Registration Requirements

It is unlawful for any person to transact business from, in, or into Tennessee as a broker-dealer or agent unless such person is registered as a broker-dealer or agent under T.C.A. § 48-1-109 [3.1].

It is unlawful for any person to transact business from, in, or into Tennessee as an investment adviser or investment adviser representative unless the person is registered as an investment adviser or investment adviser representative under T.C.A. § 48-1-109 [3.1].

Limitations on Offerors

  • No offeror shall make a takeover offer if the offeror beneficially owns, directly or indirectly, five percent (5%) or more of any class of the equity securities of the offeree company, any of which were purchased within one (1) year before the proposed takeover offer, unless the offeror, before making such purchase, has made a public announcement of the offeror’s intention with respect to changing or influencing the management or control of the offeree company [2.1].
  • No offeror may make a takeover offer involving an offeree company which is not made to the holders of record or beneficial owners of the equity securities of the offeree company who reside in this state, or which is not made to such persons on substantially the same terms as the offer is made to those holders or owners who reside outside this state [2.1].

Shares without Certificates

  • The board of directors of a corporation may authorize the issue of some or all of the shares of any or all of its classes or series without certificates. The authorization does not affect shares already represented by certificates until they are surrendered to the corporation [1.2].
  • Within a reasonable time after the issue or transfer of shares without certificates, the corporation shall send the shareholder a written statement of the information required on certificates by § 48-16-206(b) and (c), and, if applicable, § 48-16-208, except that no such written statement need be sent by a corporation in respect of shares that are not subject to any restriction on transfer described in § 48-16-208 and that are issued by a corporation subject to the reporting requirements of § 13 of the Securities Exchange Act of 1934 (15 U.S.C. § 78m) [1.2].

In summary, to offer equity to investors in Tennessee, you must comply with the securities laws in the state. You may impose restrictions on the transfer or registration of transfer of shares of the corporation, and these restrictions must be authorized by T.C.A. § 48-16-208. Additionally, you must register as a broker-dealer or agent under T.C.A. § 48-1-109 and as an investment adviser or investment adviser representative under T.C.A. § 48-1-109. If you are making a takeover offer, there are limitations on offerors, and you must make the offer to all holders of record or beneficial owners of the equity securities of the offeree company who reside in Tennessee. Finally, the board of directors of a corporation may authorize the issue of shares without certificates, and the corporation must send a written statement of the information required on certificates to the shareholder within a reasonable time after the issue or transfer of shares without certificates.

Source(s):
Jurisdiction

Tennessee