Is Now a Good Time to Raise Additional Capital?

The Covid-19 pandemic and subsequent lock downs have caused cash flow problems for many businesses. However, companies with good fundamentals are always in demand. By “good fundamentals” we mean companies with a well thought out business plan, solid management and good growth prospects. Companies with these characteristics can access the markets in a variety of private securities offerings even under current conditions.

A securities offering is not appropriate for every business. Raising equity capital is one of the most difficult tasks facing the privately held business, but it is also one of the most critical. The extent to which an entrepreneur can raise equity capital is often the difference between the success and failure of a business. An infusion of capital into a business in the form of an equity or equity-equivalent investment provides more than additional cash to the business, it also improves the borrowing base for securing credit. Sources of equity financing include friends and relatives, individual investors, public and private pension funds, institutional investors such as insurance companies and investment companies, and venture capital firms. Raising equity capital from these sources, however, brings into play complex state and federal securities laws.

Federal securities laws apply to every sale of securities, in any state, including Ohio, regardless of the type of business entity or the sale price of the securities. Likewise, the Ohio Securities Act is applicable to every sale of securities in Ohio, and other states have similar statutes. Both state and federal laws require registration with a regulatory body unless an exemption from registration is available.

The securities laws were enacted to protect investors. These laws focus on disclosure to investors, providing them with all information that is material to the investment decision. The securities laws and regulations specify the types of information which must be disclosed to investors. An effective guide through these provisions is essential.

For over 40 years, Carlile Patchen & Murphy has helped clients through the rigorous process of regulatory compliance. Our thorough technical knowledge of state and federal securities laws, creativity in structuring transactions, and experience in negotiating transactions with institutional investors and venture capitalists results in compliance and innovation in executing your business concept. If you have questions about private securities offerings and how they may benefit your business, call a CPM Business Law Attorney. We are happy to help guide and secure your business’ future.