Regulation D Rule 504 - Reg D 505 - Reg D 506 - PPMs - Stay Compliant
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Banks were broke, tax payers bailed them out. Who's bailing you out of your business funding needs? Regulation D Rule 504, 505 and 506 may come to mind. Commonly referred to as the Private Placement Memorandum (PPM), Regulation D is a mechanism in which companies can raise capital from the public via private placement.
One damaging misconception that entrepreneurs have when using reg d to raise capital is that they can directly solicit the public for investment capital; this is not the case. In fact, the PPM is for insiders only and should not be offered to anyone outside of your immediate contact sphere. Failure to comply with this aspect of SEC regulation can shut your raise down before it even starts and worst yet it is something that your competitors will use against you down the road.
Don't be naive. When you raise capital it's telling your competitors one of two things, either you're growing and will become more of a threat and need the capital to expand or you're in trouble and they will use every angle to sucker punch you when you're down.
Look past the reality that the SEC will shut down your raise immediately upon discovering you were non compliant (and rightfully so, these laws are put in place to protect consumers and bring order to a capital raise). Understand that your competitors are watching you. They are watching how your raising capital, what angle's you're using for expansion, what banks and investors you're talking to for capital, what methods you're using to communicate with investors whether they are insiders or by direct solicitation to accredited strangers.
Just as your capital raise is winding down and you're about to start using some of that escrow cash, an anonymous call is made to the SEC (you won't find out until three months down the road that it was that kid you fired three years ago and is now working in the sales office of your largest competitor). Now the capital is frozen, investors are ticked, that PCAOB audit you had set up before your s1 filing is now on hold because you're under investigation and your problems are now just beginning.
Word to the wise; first, if you're using a PPM to obtain funding, do it the right way. Hire a professional and get legal advice so you do get into a gray area of the law. Second, keep a lid on it. Let's just say you follow all the rules and bring in capital from friends and family and you follow SEC law to the minute of details. When your competition finds out, if they are as cut throat as most trying to survive in this economy they will still drop a line to the SEC, attorney general's office and even the IRS.
They'll lie and remain anonymous the entire time, the government allows this and at the end of the day you are guilty until you can prove yourself innocent and the false allegations are just as damning as if you had taken the wrong approach to begin with. Watch your back. In this market, everyone is watching. It's every man for himself.
Follow the rules and keep your lips zipped don't let anything jeopardize your raise.
Article Source: Articlelogy.com
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