William Rosellini

Private Securities Sales

The two general types of Regulation D capital raises: (1) Equity, and (2) Debt. These can also be combined into a Convertible hybrid of the two (see #3 below).

1. An ‘equity’ offering is where the company sells partial (or a majority) ownership in the company. The ownership, or equity, is transferred to investors via a security; for example, stock shares, partnership interests, or membership units. Equity offerings are preferred by early stage companies because there is typically no structured repayment schedule; the investors receive a return when the company profits and those profits are then dispersed; however, the payment terms vary depending on how the investment is structured.

2. A ‘debt’ offering is where the company raises debt financing by selling promissory notes to investors with a set annual rate of return, and a maturity date for when the investors will reap a ‘Return On Investment,’ or ROI. A debt offering is much like a business loan, but, instead of a bank providing the financing, a single investor (or group of investors) lends capital directly to the company. These debt instruments can also be referred to as debentures.

3. A ‘convertible’ offering is a combination of the aforementioned types; for example, a ‘debt’ offering that allows the lender/investor to ‘convert’ his/her debt note into shares of ‘equity,’ which then satisfies the debt obligation in-part, or in-full, depending on how the deal is structured.

Preferred Business Structure: The Regulation D exemptions can be used by domestic as well as foreign corporations. While the rules can be used by any corporation type the preferred structure is a “C” Corporation or Limited Liability Corporation “LLC.”

 

 

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