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Legal Considerations for Raising Capital

Posted on May 18, 2021 by Adam Eaglin

There are numerous legal considerations every entrepreneur must face when starting a new business, and raising startup capital is one that can be fraught with risk. Hiring a qualified securities attorney isn't a luxury; it is a requirement for businesses seeking to raise capital from third parties.

Some of the key general considerations are:

O Properly organizing the business as business entity under state law;

O Ensuring the firm has issued sufficient authorized shares of stock of the same type that will be offered to investors;

O Be sure that any existing and possible legal issues are solved before issuing stock to investors;

O Have an experienced securities attorney analyze the federal securities laws, along with the securities laws of any state where stock may be provided to potential investors, to make sure the company and its investment offer complies with these laws;

O Have your lawyer clarify in writing the potential personal liabilities of the organization's directors and officers if the company violates any federal or state securities laws in raising capital. Possible penalties can be very severe, ranging from civil fines to jail time;

O Make Sure your written investment prospectus Includes all necessary state and federal disclosure language in the appropriate areas;

O Your Lawyer should review the business plan and financial statements for potential untrue and/or deceptive statements; and

O Obtain a written opinion from your attorney if your individual investment opportunity must be registered with the proper regulatory agencies.