Raising Capital in New Mexico
If you’re considering an offering of securities to raise capital for your business, the following information highlights a few alternatives and suggestions to help you comply with state and federal securities laws. There are various types of securities to consider for raising capital, but most development stage and growth companies issue equity securities, such as stock or LLC interests rather than debt securities.
Issues to Consider
As with any major business decision, it’s important to research alternatives and to consider the legal and accounting requirements before offering securities to any investors (even family and friends).
You should consider the following aspects of selling part of your company to investors:
- The cost of equity capital can be expensive and issuance of debt may not be feasible.
- The regulatory requirements for securities offerings are complex.
- New investors will be “looking over your shoulder” as you manage “their” company.
- Accountability and access to high quality information will become even more important with serious consequences for errors.
- Many entrepreneurs have discovered that complying with complicated state and federal laws is not the most challenging aspect of conducting a securities offering—the process of finding appropriate investors and selling to them is very hard work!
- Officers must ordinarily offer and sell securities of small companies themselves because broker-dealers are rarely interested in underwriting small offerings, and no compensation can be paid for offering & selling unless registered as an agent.
- Before spending the time and expense, entrepreneurs should carefully determine whether securities of their company are reasonably marketable.
Regulation of Securities
Once you’ve decided to offer securities to new investors in your company, it is important to determine how you will comply with both state and federal securities laws and regulations. The New Mexico Securities Division (Securities Division) regulates securities offerings and persons who sell securities in New Mexico Many of the modern versions of Blue Sky Laws are based on a Uniform Securities Act that was developed in 2002 by the National Conference of Commissioners on Uniform State Laws, including the current laws in New Mexico.
Federal securities laws were not enacted until more than 20 years after the first Blue Sky Laws and include the Securities Act of 1933 and the Securities Exchange Act of 1934. Those federal laws are administered and enforced by the U.S. Securities and Exchange Commission (the “SEC”). Small or local securities offerings are regulated primarily at the state level, but entrepreneurs and their professional advisers must also be aware of exemption requirements and anti-fraud provisions under the federal laws.
Securities Registration or Exemption Alternatives
Public offerings involve advertising or other methods of general solicitation to attract investors and must ordinarily be registered before any offers or sales of securities. If you want to avoid the complexities and documentation requirements of registration, then you must carefully comply with the conditions for an exemption from registration. Common Exemptions
What’s the SCOR?
“SCOR” refers to Small Company Offering Registration. SCOR was originally developed by state securities regulators as a simpler (but still not simple) type of registration for small business offerings. SCOR offerings are exempt from federal registration at the SEC if the issuer complies with Rule 504 under Regulation D (up to $1 million), Regulation A (up to $5 million) or Rule 147 for an offering within a single state where the Company is based. The SEC requires notice filings for exemptions under Regulations A and D and the Reg’ A offerings are reviewed by SEC staff.
SCOR provides a question-and-answer or “do-it-yourself” type of format for the disclosure document (prospectus) on Form U-7. However, we suggest a team approach to preparing the U-7 with the involvement of company owners/managers, an attorney and an independent CPA. An extensive Issuer’s Manual with explanations of SCOR is available with guidance and suggestions for preparing the Form U-7. Both the manual and Form U-7 can be found under SCOR Forms.
NOTE: This brief overview does not include a thorough explanation of all regulatory requirements for offering securities, and it does not constitute legal or financial advice. You should consult with a securities attorney and contact Securities Division staff when planning a securities offering in New Mexico.
Other Securities and Business Information Links
North American Securities Administrators Association at: www.nasaa.org
Coordinated Review Program at: www.coordinatedreview.org
SEC Information for Small Businesses at: http://www.sec.gov/info/smallbus.shtml