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Last Updated on January 22, 2020 by John Fischer

Many states are now accepting the Small Corporate Offering Registration (“SCOR”), in conjunction with Rule 504 of Reg D, which will make it easier for small businesses to use the Reg D exemption.  By using Form U-7 the disclosure process is streamlined so you can present information in an easy format instead of worrying about a variety of different disclosure documents. It reduces the overall cost to the company or entrepreneur in putting the private placement memorandum together.   You may need help from an attorney on some of the more technical legal questions but more experienced entrepreneurs may be able to answer this on their own.

Another benefit to SCOR is that Accredited Investors are able to have all of the information they need in order to make an informed decision on whether or not to invest.  This is good for the company as well, since investors cannot claim they had a lack of information prior to investing.

In order to use SCOR a company must meet these qualifications:

  • be a corporation or centrally managed limited liability company organized under the laws of the United States or Canada
  • not be an investment company under the Investment Company Act of 1940;
  • not be subject to the reporting requirements of the Securities Exchange Act of 1934;
  • not be engaged in petroleum exploration and production, mining, or other extractive industries; and
  • not be a development stage company with no specific business plan or purpose other than merger.

If any Officer or Director has a previous securities violation the company cannot use SCOR.

The offering itself must also meet this criteria:

  • Each unit or share must be sold for a minimum of $1 each (common stock)
  • The Company cannot split the common stock for at least 2 years if doing so would cause the value of each share or unit to drop below $1.
  • Financial statements need to be prepared using standard accounting principals.
  • Un-audited financial statements are okay if they are for interim (mid year) statements.

You should complete and submit the SCOR form with the state where you plan on selling your private securities before you start selling them.  You may be able to arrange a pre-filing meeting to go over your forms to ensure compliance.  If you are selling in multiple states you may be able to get a regional review which will save time.  Having your documents reviewed and approved for compliance is a safe guard for your company from future violations and complaints.

Complete your SCOR at the same time you are filing out Form D for the SEC.  Your Form D will become part of the offering package you submit to the review board. You can read more information about SCOR HERE.

You can raise capital without registering with the SEC by using the Regulation D exemption found in the Securities and Exchange Act of 1933.  There are basic disclosure requirements under Reg D but they are minimal in comparison with issuing a public offering. The major difference is that you need to raise funds from Accredited Investors instead of on the open market.

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