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
If securities financing is appropriate, what form should such financing
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,
? 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
? 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
? how investors will be solicited (publicly or privately)
? whether licensed securities salespersons will be required to sell the
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”
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
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.
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
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
* 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.