The Original Crowdfunding: The Registered Public Offering

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Money Crowdfunding

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“Crowdfunding” is the new buzzword for raising capital through the public. You may have friends or family who have used it to solicit investment in their latest “million dollar idea”, or maybe you’ve tried to get your next great business off the ground using the various crowdfunding platforms. Even the popular TV-Show “Southpark” recently took aim at the newest fad for fundraising. What you probably didn’t know is that a similar platform has been available to entrepreneurs for quite some time, the Registered Public Offering (“RPO”), or Direct Public Offering.

What is an RPO?

An RPO is a way to raise capital by directly offering securities to the public without having to go through the traditional channels required by an Initial Public Offering (“IPO”). Unlike an IPO, an RPO does not need to be underwritten by securities broker-dealer firms that only offer those IPOs to a select group of investors and take a significant commission. By bypassing the underwriting process required in issuing an IPO, companies that issue RPOs don’t have to pay the high commissions charged by the underwriters. Instead, a law firm, can assist your company with issuing an RPO for less than the hundreds of thousands it costs to go through the IPO process. Furthermore, issuing an RPO allows entrepreneurs to legally raise investment capital from the public without having to fit into the crowdfunding securities exemption created under the JOBS Act. Therefore there is no cap on how much an investor can invest.  A company offering an RPO will still need to comply with the SEC rules and state specific Blue Sky Laws.

Is an RPO right for you?

Small businesses may find that fundraising through an RPO makes sense because many of the traditional funding sources are not available to them. Banks are lending less and less and even VCs and Angel Networks are more inclined to look for high growth, fast exit projects. That sometimes leaves an entrepreneur with few options for fundraising. However, an RPO may provide a way to solve that problem by allowing anyone, employees, customers, friends, family, etc. to invest in your company.

An RPO might be an amazing way to gather public support or customers for a project. Think of a consumer beverage company looking to raise brand awareness, for example. What better way than to offer customers a piece of the company?

LA Registration Requirements

A Louisiana corporation that wishes to complete an RPO in the Louisiana must ensure compliance with both federal and state securities registration requirements. Although an intrastate offering under one million dollars will likely qualify for exemption from federal registration requirements under Rule 504, the terms of the exemption require compliance with the state’s disclosure and registration requirements. Additionally, Louisiana provides for small issue registration, which applies a less rigorous registration process to small offerings, but the offering must still meet strict statutory criteria for qualification and comply with a detailed list of requirements for registration.

Regardless of what state the company is incorporated or licensed, or where the RPO is to be issued, it is imperative that an issuer comply with the registration requirements. If they are overlooked, the issuer could face severe civil and criminal penalties. Moreover, the registration requirements do not preclude compliance with antifraud provisions of both federal and state securities laws.

Another benefit of the RPO is that the company can take investment from accredited and non-accredited investors alike. Often, companies trying to raise money privately may be hamstrung by rules governing which types of investors may be allowed.

With all of the talk about “crowdfunding,” many businesses overlook an older but very useful tool in the fundraising toolbox that may have the added benefit of increasing brand awareness.