1. Determine Whether You Qualify
2. Decide How Much Capital You Seek
3. Complete the Entrepreneur Application
   

Once you've determined that your company initially qualifies to be listed on ACE-Net under both the SEC and NASAA requirements set forth above, you now need to decide how much capital you wish to raise, and from where you seek the investment. As you consider your needs, you also need to be aware of the various federal and state legal requirements involved.

The following information is designed to provide you with a general overview of some of the applicable laws. You are strongly urged to consult an experienced attorney to develop a securities law compliance plan specific to your proposed offering. It is critical that you comply with all legal requirements now as any mistake you make will not only cause potential liability, but it can also affect your ability to obtain further equity financing later. Please refer to the SECURITIES LAW folder for more information.

Quick Overview of Securities Laws
Federal and state securities laws have as their primary objective the protection of investors. Thus, companies wishing to offer securities must provide full disclosure of all material information so that investors may make informed investment decisions.

As a general rule, all offerings must be "registered," that is, reviewed and approved by both federal and state securities regulators, before they can be provided to prospective investors. This registration process can be quite costly and time-consuming for small businesses. Realizing this, both federal and state regulators provide certain "exemptions" that simplify registration for small businesses. To maintain investor protection, however, these exemptions have restrictions on the amount of money that can be raised, how the offering information may be disseminated, and the number and type of investors that may be contacted by the selling company.

FEDERAL LAW EXEMPTIONS
At the federal level, there are various exemptions that may be available to you. However, ACE-Net is designed to work with two exemptions: Regulation A and Regulation D, Rule 504.

Regulation A:

• Allows you to raise up to $5 million in any 12-month period from anyone. Although this is technically an exemption from registration, there are, nevertheless, a number of documents that must be registered and filed with the SEC.
• To rely on the Regulation A exemption, you need to first file a set of documents, collectively known as the "Offering Statement," with the SEC for its review. Once the SEC and applicable state(s) securities regulator(s) "qualify" your Offering Statement, you can proceed to offer and sell your securities using your Offering Circular.
• The Offering Statement is filed by using a Form 1-A, which consists of a Notification, an Offering Circular, and Exhibits. Form 1-A provides two "models" for preparing your Offering Circular, Models "A" and "B." Because Model A is almost identical to the NASAA Form U-7, the SEC will also accept Form U-7 as an Offering Circular.

Regulation D, Rule 504:

• Allows you to raise up to $1 million in any 12-month period, and no limitation is placed on the number of persons purchasing securities or on what the purchaser may do with the purchased securities.
• State securities regulators have the primary responsibility for oversight of offerings under $1 million.
• Rule 504 does not require you to file anything with the SEC or to provide disclosure documents to investors prior to a sale, but you do need to file a Form D notice with the SEC within 15 days after the first sale of securities.

NOTE: All securities offering, even if exempt, are subject to federal anti-fraud provisions. This means that you are responsible for any false or misleading statement or omission, whether oral or written, which may be redressed through private or governmental legal action, including criminal sanctions. Also, if the required conditions of the exemption are not met, purchasers of your securities may seek to have the purchase price refunded from you.

STATE LAW EXEMPTIONS
Offers and sales of securities are regulated by both the federal and state governments, and compliance with one does not necessarily satisfy the other. Thus, while your offering may be exempt under Regulation A or Regulation D, Rule 504, you are still required to comply with all state registration requirements.

Generally, the type of registration at the state level is often determined by the amount of scrutiny given to the offering at the federal level. Thus, many states permit Regulation A offerings to be registered "by coordination" since the SEC already required issuers to submit a lot of disclosure information. This means that you will probably need to provide the regulator of the state where you intend to offer securities with the same information you provided the SEC.

On the other hand, a Regulation D, Rule 504 offering is generally required to be registered at the state level "by qualification" because no registration was required by the SEC. This means that the state where you intend to offer securities may require you to submit extensive information about your offering.

While there are several exemptions available at the state level, ACE-Net is specifically designed to work with NASAA's Model Accredited Investor Exemption or similar state variations.

Accredited Investor Exemption:

• In 1997, NASAA adopted a "Model Accredited Investor Exemption" which relieves companies from having to register with a state if the securities are sold exclusively to "accredited investors" in that state. In adopting this, NASAA anticipated that the exemption would cover Internet-based securities listing services such as ACE-Net.
• Under SEC Rule 501, Accredited Investors are high net worth individuals or certain financial institutions. The exemption is premised on the belief that these investors are able to undertake their own due diligence in reviewing securities offerings and can presumably determine for themselves the appropriateness of an investment.
• The exemption does not specify a limit on the amount that you can raise. However, because this state exemption is designed to complement the SEC Regulation D, Rule 504 exemption, the practical limit that you can raise using the combination of the two exemptions is $1 million in a 12-month period.
• Since 1997, more than half the states have adopted the model accredited investor exemption or a similar state version, and many other states are in the process of considering similar measures. Thus, in these states you can forego the lengthy securities registration process before making your offering. You simply need to meet whatever notice or filing requirements that the state may have to complete your sale.
• Please refer to the SECURITIES LAW folder the latest list of states that have adopted an accredited investor exemption.

NOTE: As with federal law, state law anti-fraud provisions also apply to your conduct regardless of whether your offering is registered or exempt at the state level.

About the Form U-7: The Small Corporate Offering Registration (SCOR) Form, also known as Form U-7, was adopted by NASAA in 1989 as a means to streamline the federal and state oversight of securities registration. The form is accepted by the SEC as well as virtually every state regulator as a securities registration document. It is a fairly simple, 118 question-and-answer form that asks for detailed disclosure on extensive aspects of your company. ACE-Net uses the Form U-7 (also known as the Small Corporate Offering Registration Form) as a template for you to input your company information onto the ACE-Net Company Database. The data entry fields listed on the left side of this screen make up the entire Form U-7 broken down into smaller sections. For detailed instructions on completing each of the sections, please refer to the Form U-7 "Issuers Manual" available from the website of the North American Securities Administrators Association at: http://www.nasaa.org . On the NASAA home page, use the pull-down menu on the top to select "Corporate Finance". On the left menu, click on "SCOR: SCOR Form" under the category titled, "SCOR" Now, on the right frame click on "Issuer's manual for Form U-7

How Much Do You Need To Raise?

Now that you understand some of the various legal issues involved in offering securities, you need to decide what option to pursue in raising your desired capital amount. ACE-Net provides the following options:

1. Raising up to $1 million using the ACE-Net "Short Form" process

• ACE-Net offers two options for raising up to $1 million within a 12-month period. The first, known as the ACE-Net "Short Form" option, works with the federal Regulation D, Rule 504 and the state accredited investor exemptions to provide you with the quickest and simplest method to have your securities offering listed on ACE-Net.
• By limiting your offering exclusively to investors in states that have adopted the NASAA Model Accredited Investor Exemption or a similar state variation, you can bypass the need to register your offering in those states. Additionally, by limiting the amount you seek to less than $1 million within a 12-month period, you need not register with the SEC. In other words, by simply enrolling with ACE-Net using the "Short Form," you gain the quickest access to an almost nationwide audience of investors!
• The Short Form consists of a subset of questions from Form U-7's 118 questions that are designed to provide the most basic and material information about your company to potential investors. You can also provide an Executive Summary or a Business Plan should you wish.
• This limited company information you provide is activated on the ACE-Net Company Database to present your company to investors as quickly as possible.
• While the Short Form option provides investors with a good initial look at your company, the information contained in the Short Form alone does not answer all of the questions that an investor will ask as a part of a "due diligence" review of your company.
• To be fully prepared for potential investor inquiries, it is strongly encouraged that you complete the entire Form U-7 and submit it to ACE-Net within 90 days from when you activate your Short Form listing on ACE-Net.

2. Raising up to $1 million by filing state-by-state

• The second ACE-Net option for raising up to $1 million within a 12-month period is for entrepreneurs seeking investors in states that have not adopted an accredited investor exemption. Your offering is still exempt under federal Regulation D, Rule 504, but you are required to file a full registration in each of those states that do not have an exemption.
• As indicated above, the Form U-7 is accepted by almost every state in the nation as a disclosure document for the purpose of registering your securities offering. Thus, you need to file your registration with each state where you intend to offer securities, have the filing reviewed or qualified, and then complete the Form U-7 template on the ACE-Net Company Database using the same information you provided to those states. If you included an Executive Summary as a part of the registration, you may include it on ACE-Net.

3. Raising between $1 million and $5 million

• If you need to raise over $1 million but under $5 million within a 12-month period, you must first qualify for federal exemption under SEC Regulation A. See the information above or contact the SEC for more information on filing under Regulation A.
• In addition to registering with the SEC, you also need to register your offering with each state where you intend to offer securities.

4. Raising over $5 million: ACE-Net is NOT For You!

• Because the SEC currently limits its exemptions to offerings of less than $5 million in a 12-month period, ACE-Net does not list companies seeking more than $5 million.

Go to detailed instructions on enrolling:

1. Determine Whether You Qualify
2. Decide How Much Capital You Seek
3. Complete the Entrepreneur Application
   
   :: Back to Learn How to Enroll