There are a number of laws that apply to raising capital from an outside source. This is mainly due to the fact that the Securities and Exchange Commission has outlined a series of regulations that ensure that angel investors are protected from companies that do not intend to use the funds as they have advertised to a potential funding source. . Whenever you are considering raising capital, you should work with an attorney who can help you develop the proper documentation for a potential funding source. It is imperative that you focus substantially on ensuring that you stay within the letter of the law when it comes to working with a third-party source of capital.
In some cases, you may have to pay a certain amount of tax on the amount of capital that you obtain from a private investor. However, these taxes only apply at the state level. You should ensure that your certified public accountant informs you of any and all applicable taxes that you may incur as a result of your capital raising activities.
When you are raising capital from angel investors or a venture capital firm, you may need to have a private placement memorandum. This document will ensure that you can create a standard method of how you offer your deal to potential investors. Also, this document will ensure that the investment you are offering is provided only to accredited investors or sophisticated investors. The Securities Exchange Commission portal has a series of data that will allow you to know the difference between these types of investors, in addition to providing you with supervision regarding the rules that you must follow with respect to your capital. building activities for your small business.
In closing, it is always important that you seek the proper legal and accounting advice whenever you are considering raising capital from an outside source. This will ensure that you do not fall into the trap of potentially losing your mutual funds because you did not follow the applicable laws correctly. It should be noted that securities laws are not only federally based, they are also based on declarations. While this can be a costly endeavor for your business, the return on your investment from having the right advisors will ensure that you don’t face fines and penalties that could affect your business for years to come.