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For more info, see our site:
www.AlternativeFundingStrategies.com

Legal Documents Required for Raising Capital Through Your Friends and Family

Raising investment capital by selling shares of your company to "friends and family" with only a business plan (or executive summary) is a lot like a carpenter who shows up to work with a bucket of nails and no hammer.

When raising capital, you are required to comply with State and Federal securities laws and regulations. The legal documents your investors receive and complete prior to making an investment in your company will serve as evidence that you met these laws and regulations in the event the offering comes into question by a regulator.

Get it wrong, and government regulators like the SEC and their state counterparts could require you to refund investors all of their money, as well as impose stiff penalties, fines and interest.

There are certain minimal legal documents that you should have ready before you start making your pitch.

To make it easy for you, we have created special flat rate packages for companies raising capital through a private placement to their "Friends and Family". Keep in mind, provided you disclose it to your investors, you can advance your company cash for legal fees and reimburse yourself from the first proceeds of the offering:

Plan* Basic Plan
$2,447
Advanced Plan
$7,447
Professional Plan
$9,997*
Services:
  • Subscription Agreement
  • Investor Questionnaire
  • New York Form 99
  • New York Further State Notice
  • Uniform Consent to Service of Process
  • SEC Form D
  • No Disclosure Document
  • Subscription Agreement
  • Investor Questionnaire
  • New York Form 99
  • New York Further State Notice
  • Uniform Consent to Service of Process
  • SEC Form D
  • Risk Disclosure Wrap (with a PPM cover, legends and risk factors)
  • Subscription Agreement
  • Investor Questionnaire
  • New York Form 99
  • New York Further State Notice
  • Uniform Consent to Service of Process
  • SEC Form D
  • Complete Private Placement Memorandum
    *with $1,500 monthly retainer
Who does this Plan work best for? The Basic Plan is best used by the Entrepreneur who is only selling shares to a limited number of investors (3 to 5) who are very close to them (i.e., people who are unlikely to complain to the SEC if your company goes bust). It is also frequently used by Entrepreneurs who do not have enough money to pay for one of the other Plans. They start with a basic plan, and if fundraising efforts go well, they use proceeds from the offering to purchase a more advanced Plan. The Advanced Plan is used by the Entrepreneur who has a solid business plan, and wants the protection of having core risk disclosures about their company, the industry and the offering made to their investors. It offers much more protection than the Basic Plan, it covers the basics in terms of risk disclosure, but by no means offers the complete protection of a Complete Private Placement Memorandum The Professional Plan offers the most liability protection for the Entrepreneur selling shares in his or her company. If you plan to offer shares in your company to a large number of people, some of which you may not know very well, we highly recommend the Professional Plan. Also, if you wants to sell shares to 35 non-accredited investors as permitted by Rule 506 of Regulation D, you are required by law to give to investors the disclosure provided in a Complete Private Placement Memorandum. The purchase of the Professional Plan is an investment in your company, as it can easily be converted into a Prospectus that gets filed with the SEC in the event you want to trade shares in the public markets.
*Excludes filing fees.


Here's a quick description of what you get:

1. Subscription Agreement. This is the contract between you and your investor. In it, the investor will make certain representations to you that, in essence, say they understand that risks of investing in an early stage company, and that they will not be ruined financially if your company fails, and that they meet the net worth requirements required by government regulators.

2. Investor Questionnaire. The Investor Questionnaire is used to backstop the subscription agreement. The Investor completes a number of questions that provide evidence of the representation the investor makes in the subscription agreement.

3. Disclosure Document. When selling shares of your company to investors, you cannot make any material misstatements about your business (like you landed a big contract with a customer when you are only in the negotiation phase) or omit to tell an investor something that is material about your business (like you were just sued by a competitor who has alleged you stole their technology) in order to induce the investor to buy the shares. When raising capital privately, your Disclosure Document is the document you present to investors to communicate the benefits of your business model - and warn potential investors of the risks inherent in your business. Depending on which set of government regulations under which you are selling shares to investors, you are not necessarily required to have a Disclosure document, but it is best practice that you do.

a. Risk Disclosure Wrap. This document is 10+ pages of risk disclosure that is literally wrapped around your business plan. It includes State and Federal legends, a PPM cover, risk factors and investor disclosures. It's better than pitching with just a business plan, but no equivalent to the full PPM.

b. Complete Private Placement Memorandum (PPM). The PPM is an artfully crafted document where we help you trumpet the benefits of your business model while still accurately disclosing all risks. Our experience will guide you through identifying what aspects of your business are material, and how to accurately disclose them to potential investors using the right terminology for raising capital privately. It offers you the most protection from liability, and depending on what exemptions from registration you rely on, may be required by law. It includes everything included in a Risk Disclosure Wrap, and also detailed disclosure about your industry, litigation, intellectual property, management, financial status and descriptions about how you determined your financial projections, a full business description prepared as required by the SEC, management description, including stock ownership of management, a description of the securities offered, and more.

4. State Blue Sky Filings. If you plan to offer shares of your company to investors who are located in the State of New York, or you make offers from within the state of New York, you are required to make certain filings with the State before making your first offer. In all other states, you file with the State within 15 days from your first offer made in such state. All our Plans cover the items you will need to meet your blue sky filing requirements.



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