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Word - Department of Finance

By Donna Armstrong,2014-03-26 21:28
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Word - Department of Finance ...

     PRACTICAL CONSIDERATIONS FOR SCOR REGISTRATION

    Who Should Use SCOR?

     Is any securities financing appropriate?

     A securities financing requires a company to disclose a considerable

     amount of information about its operations that the company may not want

     its competitors or others to know. Securities financing also takes

     considerable time and may use resources that would be better placed

     elsewhere.

     If securities financing is appropriate, what form should such financing

     take?

     Equity financing (the shareholders will remain after the money from the

     offering is gone. Does the company want that kind of continuing

     relationship with the attendant administrative expenses?) Those thinking

     of issuing equity securities should also consider other consequences,

     including:

     ? dilution of ownership

     ? implied commitments to satisfy shareholder expectations with

    regard to earnings, dividends, marketability of securities

    issued and appreciation (or maintenance) of the securities

    value

     ? if the securities issued are freely transferable (as securities issued

    under SCOR may be) there is the threat of takeover, or at

    least the possibility of constantly changing stock ownership

    which increases administrative expenses and reduces

    shareholder loyalty. If a market develops for securities,

    market activity may adversely affect the company’s ability to

    complete further financing.

     Debt financing (appropriate only when a company has a sufficient history

     of operations to show that it can service the new debt.) Fixed payments to

     debtholders may be too great a burden on the cash flow of a developing

     company, limiting management’s flexibility.

     Even if securities financing is appropriate, is SCOR the right vehicle?

     The company should review all available registration and exemption

     options to determine appropriate vehicle based on:

     ? amount of money to be raised

     ? number and type of investors sought

     ? operating history of the company and availability of audited

    financial statements

     ? how investors will be solicited (publicly or privately)

     ? whether licensed securities salespersons will be required to sell the

    offering

     SCOR allows a company to raise up to a million dollars from an unlimited

     number of people using public advertising.

     SCOR is intended for small companies with some operating history which

     have specific expansion plans which they seek to fund through an offering

     of securities to the public in reliance on an exemption from registration

     under the Securities Act of 1933, Rule 504 of Regulation D.

     SCOR is available only for corporations organized under the laws of one

     of the states or possessions of the United States. SCOR is only available

     for issuer transactions.

Who Should Not Use SCOR?

     Companies without significant operating history will have difficulty

     completing the required disclosure document.

     Companies with very complex capital structures and companies which are

     offering complicated or novel securities may have difficulty using the

     question and answer SCOR disclosure form.

     Family and closely held businesses which do not wish to share ownership.

Who may not use SCOR?

     Companies which are disqualified from use of SCOR by its “bad boy”

     provisions.

     Companies which seek to raise more than $1,000,000 in an offering.

     Blind pools, mining or extractive enterprises may not use SCOR.

Preparation for a SCOR

     Business Plan

     Financial Statements (audited if company seeks to raise more than

     $500,000, otherwise, reviewed.)

     Review of articles of incorporation, bylaws, and other corporate records by

     the company’s attorney, and changes to those if necessary.

     Review of , and if necessary, clean up of, prior securities transactions.

     Review of tax consequences of making a SCOR offering.

    Marketing Issues

     Is advertising advisable? This depends on the number and type of

     investors the company seeks to attract and the size of its existing network

     of contacts with potential investors.

     How can the company make certain it sells only to suitable investors,

     those who can afford to lose their investments and have adequate

     liquidity?

     How wide a participation does the company want in its offering? Offering

     small amounts to a larger number of investors has some advantages to a

     company by lessening the likelihood of investor suitability problems and

     the reliance of the company on the continued goodwill of a small number

     of large investors. However, administrative expenses may increase as the

     number of shareholders increases.

     PREPARATION FOR SCOR

     CHECKLIST FOR ISSUERS

1. PREPARE BUSINESS PLAN

2. CONSULT WITH ACCOUNTANT AND LAWYER ABOUT PROPOSED OFFERING:

     * REVIEW FINANCING ALTERNATIVES TO MAKE SURE SCOR IS THE

    COMPANY’S BEST FINANCING OPTION.

     * IF SCOR IS STILL THE CHOSEN MEANS OF FINANCING, OBTAIN REVIEWED

    (FOR OFFERING UP TO $500,000) OR AUDITED (OFFERING OVER $500,000) FINANCIAL

    STATEMENTS.

     * REVIEW CORPORATE DOCUMENTS AND CHANGE IF NECESSARY.

     * REVIEW PRIOR SALES OF SECURITIES.

3. DEVELOP A PLAN FOR MARKETING THE OFFERING.

     * KEEP IN MIND THAT THE COMPANY MUST SELL

     ONLY TO THOSE INVESTORS FOR WHOM SUCH

     AN INVESTMENT IS SUITABLE.

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