If i have a business can i sell stock to friends and family without them having to qualify as smart or rich?

Asked over 3 years ago - Charlotte, NC

I want to get funding for my business and I dont have tens of thousands of dollars at this time for a private placement memorandum can I get friends and family to buy some of my stock without them being smart or rich if the stock or sucurities is only $20 dollars a share? and if I wanted to go public instead of private what is the process? Is it possible that I can have a general private placement memorandum template and then have it corrected by a lawyer? thank you

Attorney answers (2)

  1. Michael S. Haber

    Pro

    Contributor Level 20

    Answered . There is, quite fortunately, no requirement that a person be either smart or rich to purchase stock from a close corporation.

    If I understand you correctly, you're wondering how you take your company (the same one that you don't have money for) public without a lawyer. The fact that you want a quickie answer to this suggests that perhaps you are unprepared for the task.

    Good luck to you.

    Michael S. Haber is a New York attorney. As such, his responses to posted inquiries, such as the one above, are... more
  2. Bryant Keith Martin

    Contributor Level 18

    Answered . The only exception for your stock sales would be to family and close friends whom you have known for at least a year. Even they must sign an extensive statement saying that they know they might lose the entire investment and that they can afford to do so. Do not try to cut corners or you will wind up repurchasing the shares. You must consult an experienced securities lawyer. I have dealt with fly-by-night nonlawyer companies that specialize in preparing private placement memoranda for a price over $15,000, with a promise that they have "contacts" wno can sell the shares. They will gladly do the work but the contacts are typically nonexistent. So avoid them.
    The process to “go public” by use of Form S-1 is similar to the one I described for a private offering writ large: The SEC and your state securities agency will insist on reviewing your prospectus in great detail and you must have a lawyer to deal with them. You will also need to find a reputable investment banker to sell them. The big difference is that you will be paying hundreds of thousands of dollars rather than the mere tens of thousands that a proper private offering would cost. There are simplified versions of public offerings, but you will likely find that you can't get anyone to selll ehough shares to make them worthwhile.
    My colleague is correct in his suggestion that you are unprepared for the task. However, he holds himself out on AVVO as a litigator and estate planner, not a securities lawyer. Do not consult any lawyer who thinks that you need not qualify the purchasers under the securities laws in order to sell shares legally.
    FEEDBACK: Both AVVO and other readers are interested in your feedback on the quality of the answers. Plz check the “thumbs up” symbol if you find an answer helpful or the “thumbs down” symbol if not.
    DISCLAIMER–This answer is for informational purposes only under the AVVO system, its terms and conditions. It is not intended as specific legal advice regarding your question. The answer could be different if all the facts were known. This answer does not establish an attorney client relationship. I am admitted only in California.
    (Bryant) Keith Martin
    sbbizlaw.com

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