Working with Legal Counsel to Ensure Securities Compliance

Speaker 0: so last thing a startup wants to do is screw some legal thing up when they're getting funding.

Speaker 1: right.

Speaker 0: so what are some best practices you can suggest for startups when working with legal counsel to ensure securities compliance during the investment round?

Speaker 1: yeah. so at the end of the day, right, nobody wants to get messed up and actually definitely do the wrong thing, but, also, nobody wants to spend money that they don't have. so here are some top tips of what you can do to make sure you are following securities law without hopefully having to pay, you know, fifteen, twenty hours of legal counsel's time to kinda get there. the first thing you wanna do is as a private company, while you're raising, if you're raising in smaller rounds and you're sort of getting started, just make sure that the people investing in your company are either immediate friends and family as defined by the regulators or are confirmed as accredited investors. the angel investors need to be accredited investors. again, the definition for accredited is two hundred thousand in annual income or three hundred thousand combined with a spouse or one million net financial assets excluding real estate or five million in net worth. again, go to the equinix learning center. all the definitions are there. but if you keep in mind, okay. i can only raise from angels, and i can only raise from friends and family, you're already off to a good start. the next thing that i'd recommend is when the person actually invests, they don't just give you the money and you give them a high five and add them to your cap table. you wanna have them sign something called the subscription agreement. usually, your lawyer can provide you a template subscription agreement for almost no cost. for example, if you're part of, like, the faskin or the osler sort of startup package, i think it's, like, five hundred bucks, and they give you access to, like, a pool of documents. one of the documents in there would be a subscription agreement. you wanna make sure you're signing a subscription agreement between yourself and your investor. that's the legal document that actually agrees to them buying the shares in your company. and you wanna make sure that that subscription agreement has the right risk disclosures that are required at the end. the other thing that i would just keep in mind is you can have more than fifty shareholders. it's not the it's not some sort of terrible, horrible thing having more than fifty shareholders. you're not instantly a public company or something like that. it just means you have to start thinking about how you're structuring your business a little bit differently when it comes to capital raising, but it's no huge negative implication. so that's not kind of the end of the world. and then finally, with the recent piece of news that i was mentioning at the beginning of our chat, craig, you wanna make sure that you're actually getting the person verified as an accredited investor if you wanna have them on board. equinesto does that for free. so you can literally just send the people and see if they get signed up as accredited, if that's something that you need help on. but, certainly, if you're paying legal counsel, make sure they're doing their job, and they actually are requiring, questing, and collecting from the investor the actual documentation proof that the person's accredited. and then signing a piece of paper saying, i attest that i'm accredited, doesn't count. now if their accountant certifies it because the person's a cpa and they certify it with their little stamp, the accountant certifies that, okay, my client is accredited. absolutely. that counts. they're qualified. so that can be a good option for investors who don't wanna provide all their personal financial details to someone.