“Associated Persons” for Direct Public Offerings

A big part of any public offering is knowing the rules of the public shell game. Pleading ignorance after you’ve broken the law is not an excuse from the perspective of regulators. In short, asking for forgiveness is NOT the better than asking for permission. One area where shareholders and management get tripped-up is when companies are looking to raise money using associated persons through Direct Public Offerings. What follows are a few of the rules for raising money using associated persons in a DPO.

When it comes to selling your company’s securities without registration with the SEC, the following rules will apply to associated persons:

  • No compensation in connection with the offering of securities. This includes payment of commissions and/or direct or indirect compensation for dealing with any type of securities.
  • No previous sanction or statutory disqualification for previously selling securities by the associated person(s).
  • The associated person is not a broker dealer or has not been associated with a broker dealer in the last 12 months.
  • The associated person is primarily performing his/her duties on behalf of the issuer and is not working on raising capital elsewhere as well.
  • The associated person does not participate in the offering of securities with the issuer more than once in a 12 month period.

The associated person is also restricted to any one or more of the following:

  • The communication by the associated person in relation to securities, provided that such communication is approved by a partner, officer or director;
  • In responding to inquiries initiated by the associated person in response to potential purchases of securities, the response is limited to what is contained in the registration statement or other offering doc registered on the Act; or
  • Performing any form of clerical work related to or impacting the transaction.

Using associated persons for raising capital is a powerful tool and helps to bypass some of the issues inherent with the SEC when it comes to raising capital for your company. Knowing where such associated persons could trip-up and break the rules is critical so you remain above the law in your efforts to engage in a Direct Public Offering. Once you know the rules involved the question is whether or not a DPO is the right option among many for your private company. That will often involve going through the detailed cost and timing analysis of a Direct Public Offering vis-a-vis other options.

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Nate Nead
Nate Nead is a licensed investment banker and Principal at Deal Capital Partners, LLC which includes InvestmentBank.com and Crowdfund.co. Nate works works with middle-market corporate clients looking to acquire, sell, divest or raise growth capital from qualified buyers and institutional investors. He is the chief evangelist of the company's growing digital investment banking platform. Reliance Worldwide Investments, LLC a member of FINRA and SIPC and registered with the SEC and MSRB. Nate resides in Seattle, Washington.
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