When startups incorporate, they typically want to avoid the expense, delay and effort associated with registering the sale of their shares. In California, the most common exemption from registration is found in Corporations Code Section 25102 (f).
Section 25102 (f) says that a corporation need not register the sale of its shares if all of the following requirements are met:
- The shares are sold to no more than 35 shareholders.
- All purchasers have a preexisting relationship with the corporation or its officers, directors or controlling persons.
- Each purchaser is buying shares for the purchaser’s own account and not for resale.
- The offer and sale of the shares is not accompanied by the publication of any advertisement.
The following are (somewhat edited) an Avvo question and my answer: Q. Is it necessary to file a Form D securities exemption when forming a California limited liability company (LLC) and only issuing an interest to the forming members?
A. The short answer is “no“. The somewhat longer answer is as follows: (more…)