I’m putting together an investment group to purchase minority ownership in an ALF to be built in AZ.
Once I find the investors willing to invest the 100k, what are some thing that should be included in a formal commitment form? Do I ask for proof of funds…and how? What legally can I ask, and not ask for?
Once the funds are confirmed, what kind of contract would protect my company the best?
Oh, believe me, I plan on having my attorney draw up the papers! My question is more along the lines of what kind of contract is needed. I plan on running the advertisement to gauge interest from local investors with these kind of funds, but I want to know what I should tell them the contract will consist of before paying my attorney to draw them up.
What legally can I ask for when screening potential investors? Can I ask for proof of funds…and how is this done?
Securities are defined as equity offerings or debt offerings. Once you make the offer to the general public, you have made a public offering.
Section 4(2) of the Securities Act exempts from registration “transactions by an issuer not involving any public offering.” To qualify for this exemption, the purchasers of the securities must:
a)have enough knowledge and experience in finance and business matters to evaluate the risks and merits of the investment (the “sophisticated investor”), or be able to bear the investment’s economic risk;
b)have access to the type of information normally provided in a prospectus; and
c)agree not to resell or distribute the securities to the public.
In addition, you may not use any form of public solicitation or general advertising in connection with the offering.
The precise limits of this private offering exemption are uncertain. As the number of purchasers increases and their relationship to the company and its management becomes more remote, it is more difficult to show that the transaction qualifies for the exemption. You should know that if you offer securities to even one person who does not meet the necessary conditions, the entire offering may be in violation of the Securities Act.