An entrepreneur’s idea, product, or service often needs capital to become a business. Unless the entrepreneur obtains a loan through a financial institution, the raising of capital is likely a securities transaction.
Equity vs. Debt Financing
Essentially, businesses raise money through equity financing or debt financing. Equity financing is when businesses raise funds by selling an ownership in their business (e.g. stock, partnership interests, limited liability company interests). Debt financing is when businesses raise funds by selling debt in their business (e.g. bonds, notes). Whatever the instrument, if a business raises capital through equity or debt, they are likely issuing a security.
Corporate Finance and Securities Registration Requirements
To issue a security so that a business may raise capital, that security must meet one of three requirements outlined in Section 61-1-7 of the Utah Uniform Securities Act (“Act”):
Which method of issuing a security depends on the particulars of your business and should be discussed with a securities attorney. However, the Division’s Corporate Finance Section can discuss some of the general requirements with you at (801) 530-6600.
Solicitors, Finders, Business Brokers
If a capital-seeking company seeks the assistance of another person or company to help raise its capital, that third party may need to be licensed as a broker-dealer, broker-dealer agent, or issuer-agent to effect the securities transaction and receive compensation.
More information about these licenses and obtaining them can be found in Licensing.
Also, you may find the Division's Business Brokering Letter helpful.
The Use of Raised Funds
While most businesses raise capital to begin production of their product or rendering of their service, some companies seek to raise capital to make investments in other companies or opportunities. In this context, the capital raised is a pooled investment fund. In such a fund, the entity and individuals may need to be licensed. Before raising capital for investing purposes, please contact the Division to discuss the business model and determine if licensing would be required.