Question

Roxxit Corporation (Mallor, 16th Ed., p. 1228, No. 5) (Hypothetical - no citation available). Roxxit Corporation is in the business of providing cloud computing and other network solutions. It is incorporated and headquartered in Ames, Iowa, where all 225 of its employees are resident. It does business in 27 states, as well as Canada and Mexico. Roxxit is a nonpublic company; that is, it is not a company required to file periodic reports with the SEC under the Securities Exchange Act of 1934. Roxxit wants to raise $835,000 of capital by selling its common shares to 53 investors, mostly individuals and businesses in the Ames area, but also some investors in Omaha, Nebraska, and Chicago, Illinois.

Answer True or False(Explain answer)

1. Under Rule 504, Roxxit is permitted to sell up to $5 million of its common shares to 53 investors without making may any disclosures of information about the offering or preparing and filing a prospectus with the SEC, even if the 53 investors are not “accredited.”

2. Under Rule 505, Roxxit may sell up to $5 million of its common shares to the 53 investors, and must inform the investors they cannot sell the shares for at least a year, and may not sell the shares to more than 35 of non-accredited investors.

3. Under Rule 506, Roxxit may sell its common shares to the 53 investors, provided there are no more than 35 nonaccredited investors and Roxxit all of the 53 investors qualify as “sophisticated” investors with sufficient business savvy and investment experience to be able to assess the investment risk.

4. Under the Jumpstart Our Business Startups (JOBS) Act of 2012, Roxxit is permitted to raise the $835,000 of capital from the 53 investors through crowdfunding without making disclosures about Roxxit’s management team, how the capital will be used, and Roxxit’s financial statements information.

5. Roxxit must place restrictions on the resale of the securities sold to the investors and inform the investors that they are not permitted to resell the securities for at least one year, if Roxxit raises $835,000 of capital under Rule 504 or through crowdfunding.

Answer 1

Answer 1

False.

Rule 504 of Regulation D provides an exemption from the registration requirements of the federal securities laws for some companies when they offer and sell up to $5,000,000 of their securities in any 12-month period, but they must file "Form D" electronically with the SEC after they first sell their securities. Item 14 of Form D, needs the information for those who do not qualify as accredited investors, and enter the number of such non-accredited investors who already have invested in the offering.

Answer 2

False.

Under Rule 505, issuers may offer and sell up to $5 million of their securities in any 12-month period. There are limits on the types of investors who may purchase the securities. The issuer may sell to an unlimited number of accredited investors, but to no more than 35 non-accredited investors. If the issuer sells its securities to non-accredited investors, the issuer must disclose certain information about itself, including its financial statements. If sales are made only to accredited investors, the issuer has discretion as to what to disclose to investors. Any information provided to accredited investors must be provided to non-accredited investors.

There is no such condition that Roxxit must inform the investors they cannot sell the shares for at least a year.

Answer 3

True

Under Rule 506, Similar to Rule 505, an issuer relying on Rule 506(b) may sell to an unlimited number of accredited investors, but to no more than 35 non-accredited investors. However, unlike Rule 505, the non-accredited investors in the offering must be financially sophisticated or, in other words, have sufficient knowledge and experience in financial and business matters to evaluate the investment.

Answer 4

True

The Jumpstart Our Business Startups (JOBS) Act, lowers reporting and disclosure requirements for companies with less than $1 billion in revenue, and allows advertising of securities offerings. It also allows greater access to crowd-funding, and greatly expands the number of companies that can offer stock without going through SEC registration.

Answer 5

True

As there are restricted securties, to resell the securities, it requires to hold the restricted securities for at least a year if the company does not file periodic reports (such as annual and quarterly reports) with the SEC.