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"):
- The security is registered with the state of Utah;
- The security or transaction is exempted under Section 61-1-14 of the Act; or
- The security is a federal covered security for which a notice filing has been made pursuant to the provisions of Section 61-1-15.5 of the 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.
To raise capital for a business, many companies offer either equity (e.g. stocks, partnership interests, limited liability interests, etc.) or debt (e.g. bonds, promissory notes, etc.) in their company.
Generally, these equity and debt interests are securities and must be:
- Exempt from registration; or
- A federal covered security.
Whether registered, exempt, or a federal covered security, issuers must comply with the appropriate securities laws and rules.
Before raising capital through a securities offering in Utah, issuers should seek counsel from a qualified securities attorney in structuring their offering and contact the Division’s Corporate Finance section to discuss the regulation and filing requirements associated with the offering.
Before investing in a security – particularly a private offering –investors should contact the Division to discuss any investment opportunity and determine if the issuer has made any filings with the Division.
Utah Securities Laws:
- 61-1-7 Registration Before Sale
- 61-1-11 Provisions Applicable to Registration Generally
- 61-1-12 Denial, Suspension, and Revocation of Registration
- 61-1-15 Filing of Sales Literature
- 61-1-14.5 Burden of Proving Exemptions