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As a DE-incorporated LLC, is it legal to link to your AngelList profile?

Sunnyvale, CA |

I know that Delaware-incorporated companies are prevented by the SEC from soliciting investments in exchange for private securities.

How legal is it to link to your startup's profile on AngelList, CapLinked or Gust, for instance? (Or is this another "gray area without precedent"?)

Attorney Answers 3

Posted

While your comment that Delaware-incorporated companies are prevented from soliciting investments is not accurate, I know what you are talking about. You are referring to the restrictions on solicitations and advertising under the private placement exemptions (Rule 502 of the 33 Act).

Rule 502(c) provides, "Except as provided in Rule 504(b)(1), neither the issuer nor any person acting on its behalf shall offer or sell the securities by any form of general solicitation or general advertising, including, but not limited to, the following:

Any advertisement, article, notice or other communication published in any newspaper, magazine, or similar media or broadcast over television or radio; and

Any seminar or meeting whose attendees have been invited by any general solicitation or general advertising"

If you comply with Rule 504 of the Act, up to $1,000,000 can be raised without the restriction on solicitation and advertising.

If you are offering securities under 505 or 506, you do have to comply with the restriction on solicitation and advertising.

Rule 502 requires a two step analysis. First, since the prohibition is only against "general" as opposed to "limited" ads or solicitations, it must be determined whether the item in question is a "general" ad or solicitation. Second, the ad or solicitation must be for a specific or particular security and not of an institutional nature. Thus, if the solicitation is not a "general" one or does not offer a specific security, the limitations of Rule 502(c) are satisfied.

And finally, to get to your answer: listing your company's profile on a website should not run afoul of 502 because such a link does not offer a specific security. (I'm assuming your profile link does not contain a specific security offering.)

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Posted

Thanks Kyle for understanding what I meant as a layman, for the detailed answer, and for the links to the text of the rules!

Posted

You really, really need to speak to a lawyer. Your comment about Delaware is completely incorrect, although part is incomprehensible. I don't know what you mean by "private securities." Issuing securities is registered by state and by Federal law. Depending on the amount you wish to raise in capital and depanding on the number of people you wish to solicit and depending on the qualification/sophistication of the people you solicit different rules apply. One thing is for sure - lining to AngelList or any public solicitation is forbidden unless you "qualify your securities." Do not sell any securities until you speak to a lawyer with the specific details of your goals and plans.

The above is general legal and business analysis. It is not "legal advise" but analysis, and different lawyers may analyse this matter differently, especially if there are additional facts not reflected in the question. I am not your attorney until retained by a written retainer agreement signed by both of us. I am only licensed in California. See also avvo.com terms and conditions item 9, incorporated as if it was reprinted here.

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Posted

Forgive my lack of precision while wielding legalese... that's why I asked on avvo :) Kyle Hulten understood my question. Thanks Kyle!

Posted

The statement about Delaware is incorrect. You can certainly raise funds privately for DE corporations. I represent a number of small companies, many organized in DE and they certainly are raising private money lawfully.

You could probably link to the other sites as long as you do not use any of their information and you clearly disclose that your link is to their site. The caveat would be that you cannot exploit their sites or name. My threshold question is why do you want to link the sites to yours? That would determine in part whether you can do so.

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Posted

I respectfully think that the answer missed the point of the question. Kyle Hulten gave the best answer.

Kenneth Allyn Sprang

Kenneth Allyn Sprang

Posted

You are correct. I was focused on the DE issue and the link to websites. I neglected to have a look at the sites. To the extent one is seeking counsel as Mr. Hulten mentions, there are SEC regulations to address. I am aware of the regs and did not make the connection to the investment fund related sites.

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