Securities laws and compliance

As a venture capital business, Nantuxent Corporation must be careful to avoid violating federal and state securities laws. There are different ways to accomplish this, including some “safe harbors” available under the law. Federal and state issues must be considered separately. The first key factor is whether investors are solicited for the venture and secondly, whether the investors are considered “qualified investors”.

Federal issues

The first and most obvious method of compliance with SEC laws – and the compliance strategy current used by Nantuxent Corporation – is to not advertise or solicit any offering. That’s why you will find no published information about Nantuxent Corporation investment.

Another method of compliance is to rely on Rule 506 of Regulation D. This rule has two parts. The first part, known as 506(b) does not allow general solicitations or advertisement and is not discussed further here since it offers no advantage over our current strategy. The second part is 506(c) which is being considered by Nantuxent Corporation but is not relied upon yet at the time of this blog post publication. The following comes from the SEC web site.

Under Rule 506(c), a company can broadly solicit and generally advertise the offering, but still be deemed to be undertaking a private offering within Section 4(a)(2) if:

  • The investors in the offering are all accredited investors; and
  • The company has taken reasonable steps to verify that its investors are accredited investors, which could include reviewing documentation, such as W-2s, tax returns, bank and brokerage statements, credit reports and the like.

Purchasers of securities offered pursuant to Rule 506 receive “restricted” securities, meaning that the securities cannot be sold for at least a year without registering them.

Companies relying on the Rule 506 exemption do not have to register their offering of securities with the SEC, but they must file what is known as a “Form D” electronically with the SEC after they first sell their securities. Form D is a brief notice that includes the names and addresses of the company’s promoters, executive officers and directors, and some details about the offering, but contains little other information about the company.  If you are thinking about investing in a Regulation D offering, you should obtain a copy of the company’s Form D available from the EDGAR database.

State issues

Each state has its own securities laws. A business that does not operate, advertise or solicit within a state is not regulated by that state.

New Jersey laws are discussed here.

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