The main point
An attractive investment opportunity is not enough.
Before speaking to U.S. investors, management needs to know which company or fund is raising money, how the investment may legally be offered, who may approach investors, and which claims can be supported.
Can you legally offer the investment?
Offers of investments in the U.S. generally must be registered with the SEC or qualify for a legal exception. Some private offerings prohibit broad advertising; others permit it only under specific conditions. [1]
Who is allowed to approach investors?
Someone paid to find investors, persuade them to invest or negotiate a securities deal may need to be registered as a broker-dealer. Calling that person a “consultant” does not settle the question. [2]
What is at stake
The company may need a registered placement partner, a different outreach process or a different fee arrangement. Unregistered brokerage activity can create legal exposure. [2]
Who receives the money, and how?
Raising money into an operating company is different from pooling investors’ money in a fund. Each structure has different legal questions. Companies based outside the U.S. still need a lawful basis to offer investments to U.S. investors. [3][4]
What is at stake
Unanswered structural questions can slow investor review and require new documents, specialist advice or changes to the proposed transaction.
Potential business impact.Can you support what investors are told?
Information about the business, investment terms, risks, use of money and conflicts must not be materially false or misleading. U.S. antifraud rules apply even to offerings exempt from registration. [5]
What is at stake
Misleading statements can lead to investor claims or government proceedings. Questions about the evidence may also weaken investor confidence and delay a raise. [5]
For your next management discussion
Three questions to put on the table.
- Which entity will take investors’ money, and which U.S. legal route permits the offering?
- Who will contact investors, and has counsel reviewed those people’s roles and fees?
- Have U.S. and relevant foreign securities lawyers reviewed the structure and investor materials?
Sources & scope
U.S. Securities and Exchange Commission
- Exempt offerings
- Broker-dealers
- Private funds
- Foreign private issuers
- Frequently asked questions about exempt offerings
General executive education only. This is not legal advice or a finding that any company is noncompliant. Actual requirements depend on the investment, people involved and jurisdictions. Qualified counsel should confirm the rules for each transaction.