Many Florida business owners do not understand the required disclosures and work involved when seeking contributions from new investors. In Florida, as in other states, a company seeking investment is typically required to provide certain disclosures and information to potential investors. These disclosures help investors make informed decisions and comply with both state and federal laws. The specific requirements can vary depending on the type of business, the nature of the investment, and whether the investment is being made through a private offering or a public offering. Here’s an overview of what a Florida company may be required to provide:
1. Disclosure Documents
Florida companies raising capital from investors typically provide the following types of documents, which may be required by federal and state securities laws:
- Private Placement Memorandum (PPM):
A PPM is a comprehensive document that outlines the details of the investment opportunity. While not always legally required, it is often used in private offerings (like Regulation D offerings) to disclose critical information about the company, the business opportunity, the risks involved, and the terms of the investment. This helps protect the company from allegations of fraud or misrepresentation. A PPM typically includes:- Company Overview: Information about the business, history, and management.
- Risk Factors: A detailed description of risks associated with the investment (e.g., market risks, business risks, regulatory risks).
- Use of Funds: An explanation of how the investment capital will be used.
- Terms of the Offering: Details about the type of investment being offered, whether it’s equity, debt, convertible notes, etc.
- Financial Statements: Financial statements or pro forma projections showing the company’s current financial health and future outlook.
- Management Team: Information about the company’s key executives and their qualifications.
- Exit Strategy: Potential ways for investors to eventually exit the investment and realize a return (e.g., through a sale of the company, IPO, etc.).
- Legal Disclaimers: Required disclosures about the risks of the investment, limitations on transferring securities, and other legal considerations.
- Subscription Agreement:
This agreement is the formal document that an investor signs to agree to purchase securities in the company. It includes information about the terms of the investment and may require the investor to provide certain representations and warranties (e.g., that they are an accredited investor or they understand the risks involved). - Operating Agreement (for LLCs) or Shareholder Agreement (for Corporations):
If the investor is acquiring equity in a company, they may be provided with a copy of the company’s operating agreement (if an LLC) or a shareholder agreement (if a corporation). These agreements govern the rights, duties, and obligations of the investors (members or shareholders), including voting rights, profit distribution, and dispute resolution.
2. Financial Disclosures
- Financial Statements: Depending on the nature of the investment and the size of the offering, the company may need to provide financial statements. For larger offerings, these may need to be audited by a certified public accountant (CPA). Smaller companies or offerings might only need to provide unaudited financials.
- Balance Sheet: A snapshot of the company’s assets, liabilities, and equity at a specific point in time.
- Income Statement (Profit & Loss Statement): A summary of the company’s revenues, costs, and expenses over a period of time.
- Cash Flow Statement: A report showing how cash moves in and out of the business.
- Pro Forma Financials: If the company is a startup or in early stages, it might provide pro forma (forecasted) financial statements to give investors an idea of expected future performance.
3. Compliance with Securities Laws
- Federal Securities Laws (SEC Regulations):
If the company is offering securities to investors, the company must comply with Securities and Exchange Commission (SEC) regulations, including registering the offering with the SEC or qualifying for an exemption. Common exemptions include:- Regulation D (Rules 504, 505, and 506): These allow private companies to raise funds without registering with the SEC if certain conditions are met (e.g., the investors must be accredited or there is a limit on the amount raised).
- Regulation A: This provides an exemption for offerings up to $75 million, but it still requires certain disclosures and filings with the SEC.
- Crowdfunding (Regulation CF): Allows companies to raise funds from a large number of investors through online platforms, subject to certain limits.
- Florida State Securities Laws (Blue Sky Laws):
In addition to federal regulations, companies raising capital in Florida must also comply with Florida’s Blue Sky laws, which are designed to protect investors from fraud. This may require the company to file a notice with the Florida Office of Financial Regulation or obtain approval before offering securities to Florida residents.
4. Investor Suitability and Accreditation
- Companies may need to verify that investors are accredited (if the offering is exempt under Regulation D) or meet other suitability requirements.
- Accredited investors are individuals or entities that meet certain financial criteria set by the SEC, such as having a net worth of $1 million (excluding their primary residence) or earning at least $200,000 per year ($300,000 for married couples).
5. Risk Disclosure
- Investors must be made aware of the risks associated with the investment, including market risks, business risks, liquidity risks, and any other factors that could impact the success of the investment. This is typically included in the PPM or other offering materials.
6. Regulatory Filings (If Applicable)
- Depending on the offering type, the company may also need to make specific filings with the SEC or Florida state agencies. For example, a Notice of Exemption may need to be filed with the Florida Office of Financial Regulation in some cases.
7. Annual Reports and Ongoing Disclosures
- After the initial investment, a company may be required to provide investors with annual financial statements, updates on business performance, or any other material information that could affect their investment.
A Florida company seeking investors is typically required to provide comprehensive disclosure documents such as a Private Placement Memorandum (PPM), financial statements, and risk factors. It must comply with federal securities laws (such as Regulation D) and Florida’s Blue Sky laws. These requirements ensure that investors have the information they need to make informed decisions and that the company is acting in compliance with relevant legal standards.
Companies should work with a qualified Florida business attorney and financial professionals to ensure compliance with all regulatory requirements and avoid legal or financial penalties.
Disclaimer: The information in this blog post (“post”) is provided for general informational purposes only and may not reflect the current law in your jurisdiction or the jurisdiction applicable to your issue/matter. No information contained in this post should be construed as legal advice from Roberts Law, PLLC or the individual author, nor is it intended to be a substitute for legal counsel on any subject matter. No reader of this post should act or refrain from acting on the basis of any information included in, or accessible through, this Post without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from a lawyer licensed in the recipient’s state, country or other appropriate licensing jurisdiction.
