Question

Two former roommates from college contact you about an opportunity to make big money. Their idea is to start a business to market a new video game system (the computer science major developed the software, the engineer created the hardware). They estimate it will take $5 million to $10 million to begin production, and they want to raise money by selling shares in the company to investors. They think their product is superior, and they are aware of the time factor. They want to get started as soon as possible. Your field of expertise is securities marketing.

Can the three of you just begin advertising for investors?

What steps must be followed to comply with the law?

How much time is needed before potential investors can be approached legally?

Answer 1

PART-1) Can the three of you just begin advertising for investors?

Answer: No, because there are steps which are required to be fulfilled prior to advertising as per the SEC

PART-2) What steps must be followed to comply with the law?

Answer: To comply with the law, the below mentioned steps must be completed.

1. A registration statement needs to be filed with the Securities and Exchange Commission if federal regulations have to be met.

2. A prospectus should be prepared and providing it's availability to the potential investors.

3. Requirements of applicable state “blue sky” laws must be fulfilled.

PART-3) How much time is needed before potential investors can be approached legally

Answer: The required time needed may vary before potential investors can be approached. First the registration statement needs to be prepared and filed. Then starting from the time the registration statement is filed there will be a twenty day waiting period before finalization of the contracts to sell securities to the investors.