Internet Offerings of Securities

Many small businesses are turning to the Internet when issuing securities and raising capital because it represents a centralized and inexpensive way to solicit potential investors from all across the country.

While the issues regarding securities law in this area are evolving, it is important the small business owner understands that a view is emerging in the law--an Internet offering is an offering of securities in every state, unless certain conditions (described below) apply.

Consequently, the small business owner intending to solicit using the Internet will have to first register the securities in every state or find an exemption in particular states.

Of course, a uniform state SCOR registration could be made in the states that accept it. Further, the Internet offering will not be subject to a state's jurisdiction if the offering:

• specifically and expressly disclaims that the securities are being offered to residents of that particular state (e.g., those not accepting the SCOR registration); in that event, no registration or exemption would be necessary in those particular states
• is registered under federal securities laws or relies on some federal exemption, other than Rule 504

Because Rule 504 will be the most common exemption used by the small business owner making an Internet offering, satisfying the second condition is unlikely.

A complete discussion of securities law is beyond the scope of this section. For example, other exemptions are available, subject to more restrictions than Rule 504, which allow the issuer to raise more capital. However, you should keep the following in mind: The SCOR registrations, Form U-7 and the Rule 504 Form D, while simplified as far as securities registrations are concerned, are in fact complex and technical. Their preparation will normally require the use of an attorney. In any case, where the small business owner questions whether an offering is subject to registration, or eligible for an exemption, it is wise to first consult an attorney. The SCOR registration must be completed and approved before any offering can be made. Subsequently an offer must be accompanied by a prospectus, which is part of the SCOR Form U-7.