GLOSSARY OF TERMS

SECURITIES LAW KEYWORDS

Section 4(a)(2) Private Offering


A small business issuer utilizing this federal exemption will still have to abide by applicable state laws. In addition, the issuer will have to take care to seek only sophisticated investors (as defined by federal law) who have sufficient access to pertinent company information. Moreover, general solicitation and public advertisement is not allowed.




Regulation D - Rule 504


Multi-state Direct Public Offering (DPO) used by small businesses for offerings up to $10,000,000 in any 12-month period to both accredited and non-accredited investors. The issuer must also adhere to State securities laws, which may include state registrations. General solicitation and public advertising are allowed under certain circumstances.




Regulation D - Rule 506(b)


Multi-state DPO where small businesses can issue offerings up to no maximum, except general solicitation and public advertisement are not allowed if non-accredited investors are involved. There is no requirement to adhere to state laws.




Regulation D - Rule 506(c)


Multi-state DPO where small businesses can issue offerings up to no maximum and general solicitation and public advertising are allowed, but only to accredited investors. There is no requirement to adhere to State securities registration or exemption laws. However, an issuer may be required to file file a notice and pay fees to the applicable State.




Federal Regulation Crowdfunding (Reg CF)


Small businesses can issue offerings up to $5,000,000 in any 12-month period to both accredited and non-accredited investors so long as the offering is through a federally registered platform called a "crowdfunding portal." There is no requirement to adhere to state securities registration laws. However, businesses will be required to provide notice and pay filing fees to State securities regulators where the busiess is a resident/incorporated and where a majority of its investors reside.




State Regulation Crowdfunding


Many states have passed their own crowdfunding laws for intrastate offerings (offerings conducted or sole entirely in one State). For instance, Illinois have limits up to $4 million in any 12-month period for offers with audited financials ($1 million for offers without audited financials). Likewise, Wisconsin has a limt of up to $2 million in any 12-month period for offers with audted financials (or $1 million without audited financials).




Regulation A


Tier 1: small businesses can issue offerings up to $20 mill in any 12-month period to both accredited and non-accredited investors nationwide, but must also adhere to state laws. Tier 2: small businesses can issue offerings up to $$75 millin any 12-month period to both accredited and non-accredited investors nationwide and do not have to adhere to state laws. Tier 2 requires more extensive disclosure requirements than tier 1, including audited financial statements.




Security


A fungible, negotiable financial instrument that has economic value, and is usually in the form of a stock, loan, bond, or an investment contract whereby people passively invest with an expectation of a financial return.




Cooperative


a business owned and controlled by the people who use, labor, or produce its services. Cooperatives are used to satisfy economic or social needs, provide a quality good or service at an affordable price, and/or to create a more equitable economic structure among consumers, producers, and workers.




Consumer-owned Cooperative


A cooperative where consumers become members-investors of a company in order to pool their money to buy goods and services at a more affordable price. For example, a group of individuals coming together to open a grocery store in order to provide the group healthy food that is not otherwise easily accessible.




Producer Cooperative


A cooperative where producers of servives or goods come together to purchase supplies and equipment, or to jointly process, market, and distribute their goods at a more affordable cost.




Worker Cooperative


A cooperative that are owned and controlled by its employees who are also worker-owners so that they may better control wages, working conditions, and profits.




Issuer


A legal entity that offers, registers, distributes, and sells securities to finance its operations. This term is defined in section 2(a)(4) of the Securities Act of 1933.




Investment Company


A company, corporation, or trust engaged in the business of pooling monies from investors in order to invest in other businesses.




Holding Company


A business entity, that holds the controlling stock in other companies and is excluded from the definition of "investment company" under the Investment Company Act of 1940.




Exempt Securities


Financial instruments that do not need to be registered with the Securities Exchange Commission (SEC) prior to its offer or sale.




Howey Test


A three part test developed out of a U.S. Supreme Court case that determines whether or not something is an investment contract, and therefore a security. If the following prongs are met, then an investment contract or a security exists: (1) there is an investment of money; (2) in a common enterprise; and (3) an expectation of profits predominantly from the efforts of others (i.e. passive investment)




Crowdfunding Portal


The regulated entities that facilitate the sale of early-stage financial securities to both accredited and non-accredited investors.




Accredited Investor


Individuals whose income exceeds $200,000 in each of the two most recent tax years, or who has more than $1,000,000 in networth, excluding the value of their home.




Non-Accredited Investor


Anyone who makes $200,000 or less in income, or who has a networth of $1,000,000 or less and who represent that they have adequate means of providing for their current needs.




Sophistication Investor


An accredited or non-accredited investor with sufficient knowledge and experience in financial and business matters of the business issuer that allows for proper evaluation of the issuer's offer.




Securities Exchange Commission (SEC)


a federal agency that is tasked with protecting investors, faciliating capital formation among businesses, and preventing market manipulation by promoting offering disclosures and the sharing of market-related information, fair dealing, and fraud-protection.




Financial Industry Regulatory Authority (FINRA)


A private corporation that acts as a self-regulatory organization authorized by the United States Congress to protect American investors by ensuring the broker-dealer industry operates fairly and honestly. It regulates member brokerage firms, exchange markets, and regulated crowdfunding portals.




"Demo Days"


A forum for small businesses to conduct an actual offer with the intent of securing an investment through negotiation, and possibly an exchange of money or the signing of a term sheet. Only government agencies, higher education institutions, nonprofit organizations, angel investor groups, and business incubators/accelerators, can be organizers or sponsors of "demo day" events.




Issuer


An issuer is a person or entity that offers or sells securities to passive investors.




Qualified Purchasers


A qualified purchaser is any (1) natural person who owns not less than $5 million in investments; (2) a company or trust owned by at least 2 related persons and that has no less than $5 million in investments; (3) an investment manager, natural person, or company with no less than $25 million in investments; and (4) a trust formed for a purpose other than investing in the fund and with at least $5 million in investments.




Investment Club


An investment club is generally a group of people who attend investors' educational meetings together as members and who pool their money together to make investments. Typically, these investors equally manage the investment club, thus making them active investors rather than passive investors in the club. Due to it having active members, the SEC does not nortmally regulate investment clubs. However, the larger the membership, the harder it is to ensure that all members remain active, rather than passive. This puts investment clubs at risk of being regulated by the SEC as an investment company or requiring an exemption from registeration.





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