The process of filing a registration statement with the SEC, in order to disclose important information about the company so an investor can make an informed decision about whether or not to purchase securities. All securities offered in the U.S. must either be registered with the SEC or must qualify for an exemption from registration requirements.
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The information a company needs to file with the SEC in order to be able to sell securities. The registration statement is available to the public on the SEC's website shortly after the company files it with the SEC. Crowdfunding securities are subject to an exemption from registration, as the requirements of registration are frequently too burdensome for a company in its infancy. Crowdfunding investments are subject to their own, more limited, disclosure requirements. If a company registers with the SEC, the registration form should include the essential facts to present an accurate picture of the company and its securities. This includes a description of the company's business, description of the security to be offered for sale (e.g. stock, bond, terms, etc.), details of the management of the company, financial statements certified by independent accountants, and ongoing disclosure. The SEC reviews the disclosure for compliance with the requirement of accuracy and truthfulness, but does not evaluate whether the investment is good or not.
A rule promulgated by the Securities and Exchange Commission that makes it unlawful for any person to (a) employ any device, scheme, or artifice to defraud; (b) make any untrue statement of material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; or (c) engage in any act, practice or course of business which operates or would operate as a fraud or deceit upon any person. What this means in lay terms is that no-one can sell a security by making an untrue statement about something important.
Rule 504 exempts an issuer of securities from registration under the Securities Act for offerings of up to $1 million. The offer and sale must that take place exclusively in one or more states, and the offering is done in accordance with the securities laws of those states.
Rule 505 exempts an issuer of securities from registration under the Securities Act for offerings of up to $5 million. The exemption only applies if the securities are sold to accredited investors and up to 35 unaccredited investors. Investors are not allowed to sell their securities freely for at least one year.
Rule 506(b) exempts an issuer of securities from registration under the Securities Act for offerings of an unlimited size. To qualify for the exemption, the securities may only be offered and sold to accredited investors and up to 35 non-accredited investors who meet certain sophistication requirements (such as being officers or directors of the company selling securities). Under Rule 506(b), the issuer may not engage in general solicitation of the offer and must have a reasonable belief that the purchasers are accredited investors or sophisticated, non-accredited investors.
Rule 506(c) exempts an issuer of securities form registration under the Securities Act for offerings of an unlimited size. Like Rule 506(b), the securities may only be sold to accredited investors. Rule 506(c) differs from Rule 506(b) in that qualified issuers may utilize general solicitation to advertise the existence of the offer. Additionally, the issuer must take reasonable steps to verify that purchasers of securities are, in fact, accredited investors.
Statutory provision that imposes liability on any person who offers or sells a security for any untrue statement of material fact or omission of a material fact necessary in order to make the statements, in light of the circumstances under which they were made, not misleading. This section is like Rule 10b-5 in that it prohibits people from making untrue statements in order to sell securities, but it is stricter because the person making the untrue statement has to prove he or she didn’t know it was false.
The Securities Act of 1933, also known as the "truth in securities" law, was enacted to protect investors following the stock market crash of 1929 and the Great Depression that ensued. Its main objectives were to ensure that investors received complete and accurate information regarding the securities they were planning to purchase, and to prohibit fraud in the sale of securities. The Securities Act follows a disclosure philosophy, i.e. it is not illegal to sell a poor investment, if it is accurately disclosed as such. It is only illegal to make false statements or present a misleading view of the investment. Companies are required to disclose important financial and other information by filing a registration statement with the SEC.
The Securities and Exchange Commission was created under the Securities Exchange Act of 1934. This law, together with the Securities Act of 1933, aimed to restore investor confidence in the capital markets following the Great Depression. The role of the SEC is to protect investors and promote stability in the markets. The SEC has the authority to establish regulations and enforce securities laws covering the offer, sale, and exchange of securities, as well as participants in the securities marketplace.
Funds invested in a company at the very early stages of its life so that the business has enough funds to sustain itself until it is either able to continue funding itself, or has developed something of value so that it can obtain further rounds of funding through venture capital. Typically business founders provide their own seed capital, using savings, credit cards or funds borrowed from family and friends. Seed capital may also come from crowdfunding or angel investors. Investors make their decision whether to provide seed capital by considering the value of the idea, and the capabilities of the founder in launching the idea.
The indirect expenses of producing the company’s goods or services. These include HQ expenses, management costs, advertising, insurance and the like. SG&A expenses are different from costs of goods and services because SG&A cannot be linked directly to the production of products or services being sold.
The ultimate owners of a company. Any person, company, or other institution that owns a least one share in a company is a shareholder. The term is often used interchangeably with stockholder.
An early-stage, high-potential, high risk, growth company. Many of the companies seeking crowdfunding are startups. They typically consist of a founder and an idea, and are usually associated with new technology. They can become incredibly successful, like Google, Apple or Facebook, or go bust, like many companies in the dot com era. A company grows from being a startup as it passes certain milestones, such as becoming profitable, being purchased through a merger or acquisition, or becoming publicly traded in an IPO.