There are a number of laws that are applicable to raising capital from a third party source. This is primarily due to the fact that the Securities and Exchange Commission has outlined a number of regulations that ensure that angel investors are protected from companies that do not intend to use the funds as they have advertised to a potential funding source. Whenever you are thinking of raising capital, you should work with an attorney that can assist you with developing the appropriate documentation for a potential funding source. It is imperative that you focus substantially on ensuring that you remain within the letter of the law as it relates to working with a third party capital source.
In some instances, you may be required to pay a certain amount of taxes on the amount of capital that you raise from a private investor. However, these taxes are only applied on the state level. You should ensure that your certified public accountant makes you well aware of any and all applicable taxes that you may incur as a result of your capital raising activities.
When you are raising capital from angel investors or a venture capital firm then you may need to have a private placement memorandum. This document will ensure that you are able to create a standard method of how you offer your deal to prospective investors. Additionally, this document will make sure that the investment that you are offering is provided only to accredited investors or sophisticated investors. The Securities Exchange Commission portal has a number of pieces of information that will allow you to learn the difference between these types of investors as well as providing you with an oversight as it relates to the rules that you will need to follow in regards to your capital raising activities for your small business.
In closing, it is always important that you seek the appropriate accounting and legal counsel whenever you are thinking about raising capital from a third party source. This will ensure that you do not fall into the trap of potentially losing your investment funds because you did not properly follow the applicable laws. It should be noted that securities laws are not only federally based but stated based as well. Although this may be an expensive endeavor for your business, the return on investment by having the appropriate advisers in place will ensure that you do not face still fines and penalties that may impact your business in years to come.
Matthew Deutsch is a prominent business plan writer. His work has been included in nine books pertaining to this subject. Additionally, Mr. Deutsch has written extensively on subjects regarding entrepreneurship, small business lending, angel investing, and other related topics.
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