As of 2013, general solicitation for a business startup has made friendlier securities regulations for a small company startup (Source). 

What is General Solicitation? 

General solicitation happens when the equity in the enterprise is offered for sale in order to raise capital. In 1933, general solicitation without registering the company with and reporting to the SEC was banned because the SEC was concerned that disreputable persons would sell fake opportunities or promote scams. The 1933 ban did prevent some of the use of advertising to scam funds from unwary individuals, but it also kept legitimate companies from using networking to promote their ideas. 

What Changes Upon the Removal of the Ban?

If you are raising money for a small company, you may now legitimately request money through media such as Facebook, by emailing or otherwise connecting to your potential customers. Other ways you may connect with future investors include:

  • On a blog
  • Through an email
  • Using texting
  • Social media such as Facebook, MySpace, etc

Private Securities still need to be invested in by accredited investors only, however. You can advertise to anyone, but can sell only to the accredited investors. Also, the rules and regulations for general solicitation for new companies are extensive, so having a startup lawyer provides an expert in getting a company started.

Challenges for Companies When Using General Solicitation

One of the biggest challenges about using general solicitation to provide your company with capital remains the fact that the letter of the law must be followed. Filing issues and other problems can cause harsh punishments for those who don’t follow the letter of the law and rules. Even so, using general solicitation can gain an impressive sum of money for investors if guided by a competent business lawyer.

Advice for Entrepreneurs Regarding General Solicitation

Some wise words of advice when desiring to use general solicitation to finance your business venture include:

  • Understanding that not all companies will benefit from advertising. If your company is a product that everyone can understand, advertising will help you. If your company is a highly technical venture that only a few in the general public will understand, then general solicitation may not be the way you want to get the word out about your potential company. 
  • Only investors who are accredited may invest. You are responsible for verifying that the individual can be accredited, however. A business lawyer can provide invaluable assistant in this matter.
  • Work with intermediaries that are worth your trust. General solicitations use a plethora of red tape as a part of the process of financing your investment. You must choose a business attorney that can help you raise capital and follow the rules, especially Rule 506. 

Entrepreneurs will be able to more easily raise money to build their new business’ potential using general solicitation. Just be sure you get the right advice from a law firm that is competent in all aspects of the corporate law and securities regulations. When you need advice, contact The Law Firm of Ekaterina Mouratova, PLLC. We have the experience you need to get your new company started.