“Business? It’s quite simple. It’s other people’s money.”
Alexander Dumas, “La Question d’Argent”, Act II, Scene 7
All businesses depend upon a consistent flow of money, particularly early stage and entrepreneurial businesses with no or insufficient revenues. And that capital generally comes from other persons by way of loans or other types of investment.
But to protect investors, laws passed since the Crash of 1929 create serious liabilities for even totally honest companies and individuals who inadvertently do not follow these laws. And forming entities such as corporations and limited liability companies does not protect them from that liability to disgruntled suing investors and government regulators.
For example, the owners of a corporation are liable if the corporation hires a capital finder to assist in finding investors, or gives extra pay to a company officer to do so, if that person is not registered under the securities laws. They are also liable if a company has (an even totally honest) offering which sells to one too many investors, or to one or more “unsuitable” investors.
Also, less draconian but just as important and complicated are the numerous types and stages of investments which may be sought (equity, debt, SAFE, angel, institutional, strategic, venture capital, etc.) and the different objectives of both the entrepreneurs seeking capital and the investors which each may (or may not) meet.
These are questions for experienced attorneys. Regrettably, the popular press (for example, the Internet, blogs) is rife with misinformation. For example, descriptions of the changes being brought about by the Dodd-Frank Act (“crowdfunding,” etc.) are mistaken as often as not.
The attorneys at Danna McKitrick have long experience in capital raising matters, advising both companies seeking capital and investors (and, for that matter, in teaching these matters in law school and in seminars for other lawyers, and in writing law review and professional journal articles).
Also, we are a mid-sized law firm that understands entrepreneurs and early stage companies, and also understand the need for this region to develop new businesses to replace those lost to control outside this region. And we operate and bill accordingly. We have been helping entrepreneurs in depth since 1980, long before it was “cool” and became attractive to the large, expensive firms.