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Private Placement / PPM Attorney - Comparing 504, 505, and 506

When raising capital via the private placement process, a business will typically use one of three exemptions to the registration requirements under federal securities laws.  In this post, I briefly summarize and compare each of the exemptions.

Rule 504

One of the exemptions from the federal securities laws regarding the registration of offerings of securitiescomes in Rule 504Rule 504 provides an exemption for the offer and sale of up to $1MM of securities in a single twelve month period. In general, an issuer of securities may not advertise, market or otherwise publicly solicit the sale the securities. Purchasers must receive restricted securities, meaning that the securities may not be sold without either registration or an exemption. Unlike some other exemptions, Rule 504 allows for a private sale without any specific disclosure requirements, although care should be taken to provide sufficient information to investors to avoid violating the anti-fraud provisions of the federal securities laws – as I mentioned in an earlier post – disclose, disclose disclose. Make sure there are no false statements, no misleading statements either, and no omissions that might make what you have disclosed misleading.

Rule 505

Another exemptions from the federal securities laws regarding the registration of offerings of securities comes in Rule 505.  Rule 505 allows a company to raise an aggregate amount of $5,000,000 over a twelve-month period.  Similar to Rule 504, Rule 505 does not permit an issuer to use general advertising or general solicitation to market its offering.  A Rule 505 offering is available to an unlimited number of accredited investors and up to 35 non-accredited investors.  Unlike a Rule 504 offering, nonaccredited investors must receive a substantive disclosure document that includes financial statements, although even if only accredited investors are involved, care must be taken such that the anti-fraud requirements are met and that there are no false statements, no misleading statements, and no omissions that might make what you have disclosed misleading.   Purchasers must receive restricted securities, meaning that the securities may not be sold without either registration or an exemption.

Rule 506

The final exemption I will discuss here comes in Rule 506.   Rule 506 contains no limit on the amount of capital that can be raised in an offering. Similar to other exemptions, an issuer using Rule 506 cannot use general advertising or general solicitation to market its offering.  Rule 506 is available to an unlimited number of accredited investors and up to 35 non-accredited investors.  Unlike Rule 505, all nonaccredited investors, either alone or via a purchaser representative, must be sophisticated, that is, they must have sufficient knowledge and experience in financial and business matters to make them capable of evaluating the merits and risks of the prospective investment.  Just as with Rule 505, nonaccredited investors must receive a substantive disclosure document that includes financial statements, although even if only accredited investors are involved, care must be taken such that the anti-fraud requirements are met and that there are no false statements, no misleading statements, and no omissions that might make what you have disclosed misleading.  Purchasers must receive restricted securities, meaning that the securities may not be sold without either registration or an exemption.

As always, make sure you get the advice of a securities attorney with private placement experience.  There are lots of complicated regulatory requirements to comply with, both on the state and federal level.  A private placement attorney can help you navigate the regulations and to draft your private placement memorandum.


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LLC Attorney - Member vs. Manager Managed

If you are thinking about forming an LLC - one decision you will need to make is whether the LLC should be managed by its members of by its managers.  I have a post over on on this subject - check it out.


Buying and Selling a Bar - Attorney

Owning a bar. At some point, whether it be while watching Cheers or hanging out of the local pub, most guys envision how cool it would be to own a bar. The camaraderie. The chance to be "that guy" that owns a bar. People who own bars, though, will tell you that it is a rough business. First of all, it is a cash business by nature. Bar owners are constantly worried about employees skimming off the top - although the commonplace use of credit and debit cards has minimized that to a degree. Bar owners also are forced to deal with the unique liabilities arising from selling alcoholic beverages.

All that being said, a bar is a lot like any other business, and bars are bought and sold as businesses all the time. The sale takes place just like any other sale - by selling assets, selling stock, via merger...etc. One of the unique aspects of selling a bar is the disposition of the liquor license. Typically a liquor license / permit is issued for a particular location and to a particular business entity. Any time the ownership of the bar business changes (whether through an asset sale or a stock sale), the approval of local and/or state regulators will be required in order to transfer the license. In Indiana, for example, the approval of the Alcohol and Tobacco Commission is required. This process can take time, sometimes up to 3 months (or more). Many times the buyer of a bar will want to operate the bar in the interim period while the approval is taking place. This is a very tricky process since legally the buyer of the bar may not sell alcoholic beverages until the license has been transferred from the seller.

One way to accomplish this is via a management agreement that allows the buyer to "manage" the bar during the time when the license transfer is being approved. It is important that this agreement is done right and in accordance with applicable laws. Something important to keep in mind - if the assets being sold include existing inventory of alcoholic beverage, title to the inventory should NOT change hands until the license/permit transfer has been approved.




Buy-Sell Agreements - Attorney

A good buy-sell agreement can prevent conflicts between business owners and help maintain the closely held status of a small businesses. In the context of a corporation, this issue is typically dealt within a buy-sell agreement between the shareholders; in the context of a limited liability company, buy-sell provisions are usually drafted into the operating agreement. Any business that has multiple owners should always deal with this issue, in writing, before potential arguments and problems arise.

If you would like to see more information regarding the types of questions business owners should consider when having a buy-sell agreement prepared, check out my recent blog post on the topic over at


Mergers and Acquisitions Attorney - Methods of Selling a Business

Buying or selling a business is not like buying or selling a car.  This "business" consists of the assets and equity of the business, along with the various ongoing liabilities of the business.  The assets can include physical assets, as well as intangible assets such as intellectual property, contractual rights and the goodwill the business has developed over time.  When you buy or sell a business, it typically means that some or all of the foregoing will be transferred.  There are many ways to do this.  I have outlined a few over at - check out the post on buying or selling a business.  

The process is very complicated - and is best accomplished with the help of a Mergers and Acquisitions Attorney.


Clio - How I Manage My Law Practice From Anywhere

My law practice is basically a virtual law practice.  I work from a home office, and I try to leverage technology to greatest extent possible to make my practice completely portable.  I am also a technology geek - so I am constantly toying with the latest gadgets and services for use in my practice.  With those characteristics serving as a backdrop, you can imagine that when I started my solo practice, I was basically obsessed with finding the best way to manage my practice...and manage it in the cloud using SaaS (for those of you who are not tech savvy, this explains what I mean by "in the cloud", and this explains what I mean by SaaS).  That took a number of the traditional desktop applications out of the running immediately.  I have a good laptop, and a server that backs my laptop up every night, but I don't want the lifeblood of my practice, my practice management system, running on my machines - which are completely dependent on me for technical support.   SaaS was the only way to go.

I looked at and tried everything.  RocketMatter came close and has some nice functionality, but the interface was less than desirable and just seemed clunky.  Then I found Clio - and it was perfect.  First of all (and this might be sad that I list this as the first reason I chose Clio) - the interface is very, very slick, easy to use, and intuitive.  It has all sorts of "ajax-y" menu and form systems.  Secondly, it has all the functionality I need - time tracking, task management, and most importantly, online invoicing and billing. Everything is streamlined.  My billing cycle varies from client to client, matter to matter - but with Clio I never have any problems keeping track and getting bills out the door.  The clincher for me, though, was the ever-evolving ClientConnect system - which allows for the creation of a password protected client area.  Clients can login, see and comment on documents, and see and pay invoices. 

I have traded many emails with Clio's co-founder and president, Jack Newton. I have even seen a few of my functionality requests actually be implemented in the application.  They are not shy about reaching out and engaging customers.

If you are looking for the best way to manage your law practice in the cloud, check out Clio!





Venture Capital Attorney - How Much Should You Give Up?

I have a new post over on about what businesses should expect to give up when raising venture capital.   To quickly sum it up, the two obvious answers are equity and control.  Take a look at the post here:  Raising Venture Capital.


New Blog for Start-ups and Small Business -

Up until now, this blog has really focused on start-up businesses and the many legal issues that come with running a start-up or small business.  That focus has been moved to a new blog I just launched today called  Here is short blurb about the new blog: is a resource for entrepreneurs, start-ups and small businesses. The site will constantly be evolving, but the focus is to provide information (not legal advice – see the Terms of Use/Disclaimer) that hopefully will be useful to the start-up community. Beyond the information supplied on this site, I am hopeful entrepreneurs will engage in a constructive dialgue by leaving comments about the articles posted here. also serves as a platform for start-ups to let the world know they exist through our Start-Up of the Week feature. This is something that is provided to qualifying start-ups free of charge. Hopefully this site will gain a strong following, and the platform provided will help more than a few start-ups get the word out.

So please check out the new blog. I think it has lots of possibilities - and I am not totally sure what direction it will take.  I love the format, the platform and the message - so I am hopeful for good things.

I will still be posting to this blog, but more on about personal musings related to my law practice. 

I will also be launching two more blogs in the coming weeks - so stay tuned!



Internet Attorney - A Checklist for Internet Start-ups

Internet start-ups are a lot like traditional, brick and mortar businesses.  The require all of the same things I listed here. There are also some unique matters that must be attended to when starting and operating and Internet Business.  Below is a checklist of some of the things every Internet start up should have.

  • A properly organized corporate entity.  Just because you are doing business on the Internet does not mean you are free from the liability concerns of traditional businesses. Make sure you form an entity through which to do business and adhere to corporate formalities.
  • A plan to protect your intellectual property.  This should include proper registrations of copyrights, trademarks and patents.  It should also include the use of confidentiality, nondisclosure, and invention assignment agreements. There should also be clear, conspicuous notices of your intellectual property rights. 
  • Properly drafted Terms of Use and Privacy Policy for your website.  This is an important step for traditional businesses who's website is merely complimentary to the bricks and mortar.  It is a vital and even more important step for an Internet business.  Don't rely on cutting and pasting from another site - that is just a bad idea.
  • If you are an SaaS provider, make sure you SaaS agreement is bullet proof.  Don't try to do this on your own!  You not only need to make sure the provisions in the agreement are sound, but you also need to make sure that you have a valid acceptance of the agreement by the end user.
  • Make sure you have carefully reviewed any development agreements.  Among other things, this needs to be reviewed VERY CAREFULLY to ensure the scope of the project, developer obligations, warranties and most importantly intellectual property ownership are all adequately spelled out in the agreement.

This list is, of course, not inclusive.  You should consult with an Internet Start Up Attorney prior to and during the operation of your Internet start up business.