Securities Advisory Releases
Advisory Release AR-11-05:
Private Offerings May Not Be Publically Promoted or Solicited; Missouri Courts Interpret “Offer” Broadly
The Commissioner of Securities is issuing this advisory release as a reminder about Missouri's requirements for legally raising capital in this State through private securities offerings.
Every day, companies and entrepreneurs offer and sell securities to legally raise capital for their businesses in this state, enhancing Missouri's economy and employment. However, in order to both protect investors and aid businesses in their efforts, there are laws which regulate how companies can offer and sell securities to raise capital.
For instance, as a general matter, it is unlawful to offer or sell a security—such as a stock, bond, promissory note, or interest in a company—in this State unless that security is registered under the Missouri Securities Act of 2003 or exempt from that requirement.
Securities are registered through submissions to the Missouri Securities Division. You can raise capital for your business and be exempt from the registration requirement if you conduct your offering privately. There are two primary trade-offs for an exempt, private offering that does not require the registration process: 1) a limitation on the number and type of investors; and 2) a prohibition on public promotion or solicitation.
First, although there are other requirements (see § 409.2-202(14)), an exempt, private offering generally entails offering your securities to no more than 25 close colleagues, friends, or family members.
Second, and just as importantly, state law prohibits companies from publically announcing or promoting a private, nonregistered offering. You cannot raise funds for your company privately—that is, without being registered under the securities laws— while somehow publically announcing that attempt. For instance, it may be a violation of Missouri's securities laws to conduct a private offering but then publicize it—even inadvertently—by discussing that offering in an article published in a local newspaper. Similarly, you would not be privately offering your securities if you referenced your capital raising attempts on your company's publically available website.
The prohibitions against public solicitation are grounded in well-established Federal and state securities laws. These laws state that any attempt to raise people's awareness about an opportunity to buy a company's securities may qualify as an "offer" under the securities laws. And once a person "offers" a security, then that person triggers the responsibilities and requirements of the securities laws. Missouri courts construe the term "offer" quite broadly, and thus even early, less formal discussions or activities often fall into this category (see Moses v. Carnahan, 186 S.W.3d 889 (Mo. App. W.D. 2006) for the most recent Missouri courts' interpretation of a securities "offer").
These laws requiring securities registration and prohibiting public announcements of private offerings benefit both companies and investors. With registration, companies gain access to more financing options; public credibility resulting from completing a securities regulator's registration process; reduced risk from inadequate disclosures to public investors; and a manageable barrier to entry which discourages fraudulent or too risky ventures.
The public also benefits from the prohibitions on publically announcing a private offering. That is, these restrictions ensure that companies offer their securities only to appropriate investors. Also, the restrictions increase the chances that all offerees will have the legally required information, thus helping investors protect themselves from unsuitable or even fraudulent offerings.
Failure to comply with Missouri's securities laws in offering securities can lead to serious consequences for you and your company. First, you or your company could be subject to administrative or civil action, resulting in a monetary fine or other types of relief against you. Also, you or your company could be liable in a private right of action from an investor.
If you have any questions, you may call the Securities Division at (573) 751-4136.