Washington State Department of Financial Institutions

Offering Options

Options for Raising Capital through a Securities Offering in Washington

Contents:

Introduction

All securities offerings must either be registered with the Securities Division or exempt from registration in accordance with the Securities Act of Washington (RCW 21.20). Below you will find descriptions of various registration options and exemptions available in the State of Washington. The summaries of the Washington Securities Act and related regulations provided herein are not intended to be complete statements of their terms and conditions. For more general information on conducting a securities offering, please see our Raising Capital webpage.


Regulation D Exemptions

The most common offering exemptions relied upon by small business issuers are those contained in “Regulation D,” or “Reg D.” Regulation D is a set of rules enacted by the federal SEC pursuant to the Securities Act of 1933 which provides exemptions from registration for offerings meeting certain requirements. Many states have enacted rules to facilitate offerings under federal Regulation D, including the State of Washington.

There are three exemptions contained in federal Regulation D: Rule 504, Rule 505, and Rule 506. The Washington counterparts to these rules are WAC 460-44A-504 (also known as the Small Offering Exemption or “SOE”), WAC 460-44A-505 (also known as the Uniform Limited Offering Exemption or “ULOE”), and WAC 460-44A-506, respectively.


Small Offering Exemption (“SOE”)

See: WAC 460-44A-504

The Basics

The maximum offering amount that may be raised under the SOE is $1,000,000 regardless of the location of the investors.

The offering can be sold to not more than 20 non-accredited investors in Washington. However, you may sell to an unlimited number of accredited investors and investors residing outside the State of Washington subject to the $1,000,000 offering limit and the laws of other states in which the offering is made. This exemption can be used for all types of securities.

Disclosure Requirements

There is no prescribed format for presenting the disclosure document, but you must disclose all the material information necessary to allow potential investors to make an informed decision. The Securities Division recommends that you include the information required by the SCOR Form referred to below. You may also wish to consult the Division’s Role of Disclosure webpage for information on general disclosure requirements.

Selling Constraints

You cannot advertise or attempt any general solicitation under this exemption. In addition, no sales commissions or payment of any kind, direct or indirect, can be made to anyone for soliciting potential purchasers.

When selling to non-accredited investors, you must make a reasonable effort to determine that the investment is financially suitable for the investor, or that the investor meets the sophistication standard. An investor meets the sophistication standard if the investor alone or with representatives has sufficient knowledge and experience in financial and business matters to demonstrate the capability to evaluate the merits and risks of the investment (see WAC 460-44A-505(2)(c)(ii)). An investment is considered financially suitable if the total investment does not exceed 10 percent of the purchaser's net worth.

Resale Restrictions

If your offering is made in conjunction with federal Rule 147, your investors cannot sell their securities to any person outside this state for at least nine months after the offering has been completed. You must inform potential investors of this resale restriction.

Issuer Disqualification

Rule 504 offerings are subject to “bad actor” disqualification provisions, which disqualify an issuer from conducting an offering in reliance on the exemption if the issuer or other relevant persons (such as underwriters, placement agents and the directors, officers and significant shareholders of the issuer) have been convicted of, or are subject to court or administrative sanctions for, securities fraud or other violations of specified laws.

Filing Procedures

There are two ways to claim this exemption:

  1. If you will be conducting the offering in more than one state, then you must file with the Securities Division a copy of the Form D that you filed electronically with the SEC along with the $50 filing fee (checks should be made payable to the “Washington State Treasurer”) and a representation that no sales have occurred in Washington at least 10 business days prior to any sales.
  2. If the offering will be confined to Washington and you will be relying upon the federal intrastate offering exemption found in federal Rule 147, then you must file a Securities Division Notification of Claim of Exemption form (PDF)*, a completed consent to service of process on Form U-2, and the $50 filing fee (checks should be made payable to the “Washington State Treasurer”) along with a representation that no sales have occurred in Washington at least 10 business days prior to any sales. No SEC filing is necessary.

In many cases, this exemption requires only a minimum review, but the application for the offering must be submitted to the Securities Division at least 10 business days before you begin to sell the offering. The Division has the right to review your offering materials upon request.


Uniform Limited Offering Exemption (“ULOE”)

See: WAC 460-44A-505

The Basics

The maximum amount that may be raised under the ULOE is $5 million.

The offering can be sold to not more than 35 non-accredited investors regardless of residency. You may sell to an unlimited number of accredited investors.

This exemption can be used for all security types, and must be used in conjunction with federal Rule 505.

Disclosure Requirements

WAC 460-44A-502(2)(b) sets forth the information required to be furnished to purchasers who are not accredited investors. The specific disclosure requirements depend on a number of factors, including whether the issuer is a reporting company and the size of the proposed offering. This information must be furnished to such purchasers a reasonable time prior to the sale. Please see WAC 460-44A-502(2)(b) and 17 CFR 230.502 for more details.

Issuers are not required to provide information to accredited investors. However, in light of the anti-fraud provisions of the federal and state securities laws, issuers should consider providing such information to accredited investors as well.

Selling Constraints

You cannot advertise or attempt any general solicitation under this exemption. In addition, no sales commissions or payment of any kind, direct or indirect, can be made to anyone for soliciting non-accredited investors, unless the salesperson is registered in Washington as a securities broker-dealer or salesperson. If sales will be limited to accredited investors, such registration is not required.

When selling to non-accredited investors, you must make a reasonable effort to determine that the investment is financially suitable for the investor, or that the investor meets the sophistication standard. An investor meets the sophistication standard if the investor alone or with representatives has sufficient knowledge and experience in financial and business matters to demonstrate the capability to evaluate the merits and risks of the investment (see WAC 460-44A-505(2)(c)(ii)). An investment is considered suitable if the total investment does not exceed 10 percent of the purchaser's net worth.

Resale Restrictions

You must inform potential investors of resale restrictions. Federal Rule 144 sets forth rules to allow for resale of restricted securities, including those issued under Rule 505.

Issuer Disqualification

Rule 505 offerings are subject to “bad actor” disqualification provisions, which disqualify an issuer from conducting an offering in reliance on the exemption if the issuer or other relevant persons (such as underwriters, placement agents and the directors, officers and significant shareholders of the issuer) have been convicted of, or are subject to court or administrative sanctions for, securities fraud or other violations of specified laws.

Filing Procedures

The following must be filed with the Division pursuant to WAC 460-44A-503:

  1. A copy of the Form D filed electronically with the SEC;
  2. $300 filing fee (checks should be made payable to the “Washington State Treasurer”); and
  3. A report of the date of first sale to a resident of the State of Washington, or an indication that sales have yet to occur (may be included in cover letter).

The notice filing for the offering must be submitted to the Securities Division no later than 15 days after the first sale or receipt of a signed subscription agreement from a resident of the State of Washington, unless the due date falls on a Saturday, Sunday, or holiday, in which case the due date is the next business day.

The Division has the right to review your offering materials upon request.

You must file the Form D with the SEC as well as the Securities Division in order to qualify for the exemption.


Non-Public Offering under Rule 506(b)

See: WAC 460-44A-506

Note: The National Securities Markets Improvement Act of 1996 preempts substantive state regulation of securities sold pursuant to Reg D, Rule 506. However, the Act allows states to continue to require notification filings. See the Notification Filing Procedures section below for filing requirements.

The Basics

There is no maximum offering amount for offerings under Rule 506(b).

Under Rule 506(b), the offering may be sold to an unlimited number of accredited investors and to not more than 35 non-accredited investors, regardless of residency.

Disclosure Requirements

17 CFR 230.502 sets forth the information required to be furnished to purchasers who are not accredited investors. The specific disclosure requirements depend on a number of factors, including whether the issuer is a reporting company and the size of the proposed offering. This information must be furnished to such purchasers a reasonable time prior to the sale. Please see 17 CFR 230.502 for more details.

Issuers are not required to provide information to accredited investors. However, in light of the anti-fraud provisions of the federal and state securities laws, issuers should consider providing such information to accredited investors as well.

As discussed below, you must furnish each purchaser with a written description of any matters that would have triggered disqualification under 230.506(d)(1) (“bad actor” events) but for the fact the matter(s) occurred before September 23, 2013.

Selling Constraints

You cannot advertise or attempt any general solicitation under this exemption.

When selling to non-accredited investors, you need not determine financial suitability; however, any non-accredited investors must be sophisticated. An investor meets the sophistication standard if the investor alone or with representatives has sufficient knowledge and experience in financial and business matters to demonstrate the capability to evaluate the merits and risks of the investment.

Resale Restrictions

You must inform potential investors of resale restrictions. Federal Rule 144 sets forth rules to allow for resale of restricted securities.

Issuer Disqualification

Rule 506(b) offerings are subject to “bad actor” disqualification provisions, which disqualify an issuer from conducting an offering in reliance on the exemption if the issuer or other relevant persons (such as underwriters, placement agents and the directors, officers and significant shareholders of the issuer) have been convicted of, or are subject to court or administrative sanctions for, securities fraud or other violations of specified laws on or after September 23, 2013.

In addition, you must furnish each purchaser with a written description of any matters that would have triggered disqualification under 230.506(d)(1) (“bad actor” events) but for the fact the matter(s) occurred before September 23, 2013.

Notification Filing Procedures

The following must be filed with the Division:

  1. A copy of the Form D filed electronically with the SEC;
  2. $300 filing fee (checks should be made payable to the “Washington State Treasurer”); and
  3. A report of the date of first sale to a resident of the State of Washington, or an indication that sales have yet to occur (may be included in cover letter).

The notice filing for the offering must be submitted to the Securities Division no later than 15 days after the first sale or receipt of a signed subscription agreement from a resident of the State of Washington, unless the due date falls on a Saturday, Sunday, or holiday, in which case the due date is the next business day.

You must file the Form D with the Securities Division in order to qualify for the exemption.


Offering Involving General Solicitation under Rule 506(c)

See: WAC 460-44A-506

Note: The National Securities Markets Improvement Act of 1996 preempts substantive state regulation of securities sold pursuant to Reg D, Rule 506. However, the Act allows states to continue to require notification filings. See the Notification Filing Procedures section below for filing requirements.

The Basics

There is no maximum offering amount for an offering under Rule 506(c).

Under Rule 506(c), all purchasers of the securities must be accredited investors. Further, the issuer must take reasonable steps to verify that all purchasers are accredited investors. In this regard, issuers must consider a number of factors, such as (1) the nature of the purchaser and the type of accredited investor that the purchaser claims to be; (2) the amount and type of information that the issuer has about the purchaser; and (3) the nature of the offering, such as the manner in which the purchaser was solicited to participate in the offering, and the terms of the offering, such as a minimum investment amount.

Please note that self-certification of accredited investor status by a purchaser would likely never be a sufficient form of verification under Rule 506(c). For more specific information on the verification requirements, see SEC Release No. 33-9415 (PDF)*.

Disclosure Requirements

17 CFR 230.502 sets forth the information required to be furnished to purchasers who are not accredited investors. The specific disclosure requirements depend on a number of factors, including whether the issuer is a reporting company and the size of the proposed offering. This information must be furnished to such purchasers a reasonable time prior to the sale. Please see 17 CFR 230.502 for more details.

Issuers are not required to provide information to accredited investors. However, in light of the anti-fraud provisions of the federal and state securities laws, issuers should consider providing such information to accredited investors as well.

As discussed below, you must furnish each purchaser with a written description of any matters that would have triggered disqualification under 230.506(d)(1) (“bad actor” events) but for the fact the matter(s) occurred before September 23, 2013.

Selling Constraints

Rule 506(c) permits an issuer to engage in general solicitation or general advertising in offering and selling securities pursuant to Rule 506(c), provided that all purchasers of the securities are verified accredited investors.

Should the offering fail to qualify under Rule 506(c), an issuer that has engaged in general solicitation may not alternatively rely on the non-public offering exemptions in Section 4(a)(2) of the Securities Act of 1933, nor RCW 21.20.320(1).

Any securities salespersons or broker-dealers involved in the offering are subject to registration under RCW 21.20.040.

Resale Restrictions

You must inform potential investors of resale restrictions. Federal Rule 144 sets forth rules to allow for resale of restricted securities.

Issuer Disqualification

Rule 506(c) offerings are subject to “bad actor” disqualification provisions, which disqualify an issuer from conducting an offering in reliance on the exemption if the issuer or other relevant persons (such as underwriters, placement agents and the directors, officers and significant shareholders of the issuer) have been convicted of, or are subject to court or administrative sanctions for, securities fraud or other violations of specified laws on or after September 23, 2013.

In addition, you must furnish each purchaser with a written description of any matters that would have triggered disqualification under 230.506(d)(1) (“bad actor” events) but for the fact the matter(s) occurred before September 23, 2013.

Notification Filing Procedures

The following must be filed with the Division:

  1. A copy of the Form D filed electronically with the SEC;
  2. $300 filing fee (checks should be made payable to the “Washington State Treasurer”); and
  3. A report of the date of first sale to a resident of the State of Washington, or an indication that sales have yet to occur (may be included in cover letter).

The notice filing for the offering must be submitted to the Securities Division no later than 15 days after the first sale or receipt of a signed subscription agreement from a resident of the State of Washington, unless the due date falls on a Saturday, Sunday, or holiday, in which case the due date is the next business day.

You must file the Form D with the Securities Division in order to qualify for the exemption.


Small Company Offering Registration (SCOR)

See: WAC 460-17A

The Basics

Offerings made pursuant to the Small Company Offering Registration (SCOR) utilize a question-and-answer style disclosure document that was designed for small businesses seeking to raise capital through a registered securities offering. The form can be completed by officers of the company, saving the issuer the time and expense of hiring an experienced securities attorney to draft a disclosure document. Further information regarding this type of registration is available on our SCOR webpage.

The maximum amount that may be raised in a SCOR offering is $1 million.

There are no limits on the number of investors.

This registration can be used by corporations or limited liability companies (LLCs) for common stock, preferred stock, debt securities, or membership interests.

For corporations, the minimum share price is $1 per share. In addition, you cannot split the common stock or declare a stock dividend for two years after the effective date of the registration. For LLCs, the minimum price is $1 per unit of interest.

Companies Excluded

This registration cannot be used for offerings for which the specific business to be engaged or property to be acquired cannot be specified (such as blind pool offerings); offerings involving oil exploration or production, mining, or similar industries; or theatrical productions.

In addition, SCOR is not appropriate for holding companies, portfolio companies (such as real estate investment trusts), issuers with complex capital structures, commodity pools, and equipment leasing or real estate programs.

Related Rules

This registration option can be used for debt securities only if the company can demonstrate the ability to service the debt based on current earnings.

Equity offerings must comply with several North American Securities Administrators Association (NASAA) Statements of Policy pertaining to items such as affiliated transactions, excessive options and warrants, and promotional shares. These policies are available on the Division’s NASAA Statements of Policy webpage.

Disclosure Requirements

You must use the SCOR disclosure document (Word) (also known as the “SCOR Form” or “Form U-7”). The North American Securities Administrators Association has prepared a SCOR Manual (Word) that provides direction on filling out the form.

You must provide financial statements that have been prepared in accordance with generally accepted accounting principles (GAAP). Having the financial statements compiled, reviewed, or audited by an independent certified public accountant is strongly recommended for companies that lack the requisite accounting expertise.

Please note that if you are planning to sell to residents of more than one state, you will need to satisfy the financial statement requirements of the most restrictive state. Many states require audited statements.

Filing Procedures

The SCOR disclosure document and a uniform application to register securities (Form U-1) constitute the application for registration of the offering. They should be submitted to the Securities Division with a cover letter and appropriate fee.

The filing fees range from $100 to $550, depending on offering size. The fee for the first $100,000 of securities to be offered in this state is $100. Multiply the amount in excess of $100,000 by .0005 and add $100 to determine the fee for offerings in excess of $100,000.

This application will be carefully reviewed, and comments specifying any substantive or disclosure deficiencies will be communicated to you. To obtain a permit, you must revise and resubmit your disclosure document as requested until you have met all substantive and disclosure requirements.

In addition to the disclosure document, you must submit any additional information and documents required by WAC 460-17A-060. If you plan to sell to residents of more than one state, a coordinated review of your offering may be available. Coordinated Review-SCOR-West (CR-SCOR-West) is designed to streamline the review process and ease the burden on issuers of having to interact with securities examiners in multiple states.

The Securities Division has sample SCOR disclosure documents available upon request that may be used as guides in preparing your disclosure document.

Selling Constraints

The securities can be sold by the issuer or a securities broker, but in either case the broker and/or salesperson must be licensed with the Securities Division. Salespersons who will receive commissions for selling the offering must pass qualifying examinations. If no commissions will be paid, officers and directors of the issuer can become licensed without passing any qualifying examinations by filing a completed salesperson application (Form U-4 (PDF)*) and paying the required $40 licensing fee.

You may use advertisements and announcements to solicit investors for the offering; however, content restrictions apply. Any advertisements or announcements must be filed with the Securities Division at least five business days before they are used. If the issuer is required to establish a minimum offering amount, all funds received must be placed in an impound/escrow account at a bank or similar financial institution until the minimum offering amount has been raised.

If you intend to sell to anyone that is not a Washington resident, you must also file with both the SEC and the other states where you will be selling. A federal Form D should be submitted to the SEC stating that the company is claiming the exemption provided under Rule 504. State filing procedures vary greatly. You should contact each state directly for further information. Please contact the Division to obtain contact information for other states.

If you will be selling only in Washington, you may use either Rule 504, which requires a Form D filing, or the Rule 147 exemption, which does not require a federal filing, for your federal exemption.

Resale Restrictions

If SCOR is being used with federal Rule 147, then investors cannot sell their shares to any non-Washington resident until at least nine months after the offering has been completed.

Reporting Requirements

You must provide a securities sales report and updated financial statements to the Securities Division each quarter until the offering is completed.

If any event occurs that would materially affect the accuracy of the prospectus, you must immediately report this information to the Securities Division. This prospectus might require revisions to include the new information, and the revised prospectus must be used when soliciting new investors.

You must provide financial statements prepared according to generally accepted accounting principles to all investors for five years after the offering.


Registration by Coordination

See: RCW 21.20.180

The Basics

Any offering for which a registration statement has been filed with the SEC under the federal Securities Act of 1933 may be registered by coordination. Any filing made under federal Regulation A (PDF)* also fits in this category.

There is no maximum offering amount nor is there a limit on the number of investors, except for offerings made pursuant to Regulation A (PDF)* where the maximum offering amount is $5 million.

Related Rules

This registration can be used for debt securities only if the company can demonstrate the ability to service the debt based on current earnings.

Equity offerings must comply with several NASAA Statements of Policy pertaining to items such as affiliated transactions, excessive options and warrants, and promotional shares. These policies are available on the Division’s NASAA Statements of Policy webpage.

Disclosure Requirements

The disclosure requirements vary with the type of federal filing made. These requirements are defined in various federal regulations. Regulation A (PDF)* filers have the option of using a SCOR question-and-answer format offering circular similar to the SCOR Form. Please contact the SEC for further information on disclosure requirements. The further information section of this document contains contact information for the SEC, including their website address.

Filing Procedures

The federal registration statement and a uniform application to register securities (Form U-1 (PDF)*) are considered the application for registration of the offering. They should be submitted to the Securities Division with a cover letter and appropriate fee. In addition to the disclosure document, you must submit any additional information and documents required by RCW 21.20.180.

The minimum filing fee is $100. The fee for the first $100,000 of securities to be offered in this state is $100. Multiply the amount in excess of $100,000 by .00025 and add $100 to determine the fee for offerings in excess of $100,000.

This application will be carefully reviewed and comments related to substantive and disclosure requirements will be communicated to you. In order to obtain a permit, you must revise and resubmit your disclosure document as requested until you have met all substantive and disclosure requirements. Once all issues have been resolved and the offering has been declared effective by the SEC, the Division will send a permit for the sale of securities to allow you to commence the offering.

The Securities Division recommends hiring an experienced securities attorney to prepare and conduct this type of offering, particularly when the issuer is not utilizing the Regulation A (PDF)* question-and-answer format option.

If you plan to sell to residents of more than one state, a coordinated review of your offering may be available. Coordinated Review-Equity (CR-Equity) is designed to streamline the review process and ease the burden on issuers of having to deal with securities examiners in multiple states. More information about this program is available at www.coordinatedreview.org.

Selling Constraints

The securities can be sold by the issuer or a securities broker, but in either case the broker and/or salesperson must be licensed with the Securities Division. Salespersons who will receive commissions for selling the offering must pass qualifying examinations. If no commissions will be paid, officers and directors of the issuer can become licensed without passing any qualifying examinations by filing a completed salesperson application (Form U-4 (PDF)*) and paying the required $40 licensing fee.

You may use advertisements and announcements to solicit investors for the offering; however, content restrictions apply. Any advertisements or announcements must be filed with the Securities Division at least five business days before they are used. If the offering is not firmly underwritten, you may be required to establish a minimum offering amount. Under these circumstances, all funds received must be placed in an impound/escrow account at a bank or similar financial institution until the minimum offering amount has been raised.

Reporting Requirements

Federal law may require your company to file periodic reports during and for an extended period after the completion of the offering. You should contact the SEC for information on reporting requirements.


Registration by Qualification

See: RCW 21.20.210

The Basics

Any security that is not required to be registered under the federal Securities Act of 1933, except those offerings being conducted pursuant to federal Regulation A (PDF)*, may register by qualification for sale in Washington.

There is no maximum offering amount, nor is there a limit on the number of investors.

Related Rules

This registration can be used for debt securities only if the company can demonstrate the ability to service the debt based on current earnings.

Equity offerings must comply with several NASAA Statements of Policy pertaining to items such as affiliated transactions, excessive options and warrants, and promotional shares. These policies are available on the Division’s NASAA Statements of Policy webpage.

Disclosure Requirements

The disclosure document must include the information required by RCW 21.20.210. Under federal and state securities laws, you must disclose all the information necessary to allow potential investors to make an informed decision.

Filing Procedures

The disclosure document and an Application for Registration by Qualification (PDF)* are considered the application for registration of the offering. They should be submitted to the Securities Division with a cover letter and appropriate fee. In addition to the disclosure document, you must submit any additional information and documents required by RCW 21.20.210.

The minimum filing fee is $100. The fee for the first $100,000 of securities to be offered in this state is $100. Multiply the amount in excess of $100,000 by .0005 and add $100 to determine the fee for offerings in excess of $100,000.

This application will be carefully reviewed and comments related to substantive and disclosure requirements will be communicated to you. In order to obtain a permit, you must revise and resubmit your disclosure document as requested until you have met all substantive and disclosure requirements. Once all issues have been resolved, the Division will send a permit for the sale of securities to allow you to commence the offering.

The Securities Division recommends hiring an experienced securities attorney to prepare and conduct this type of offering. The Securities Division has sample offering circulars available upon request that may be used as guides in preparing your disclosure document.

Selling Constraints

The securities can be sold by the issuer or a securities broker, but in either case the broker and/or salesperson must be licensed with the Securities Division. Salespersons who will receive commissions for selling the offering must pass qualifying examinations. If no commissions will be paid, officers and directors of the issuer can become licensed, without passing any qualifying examinations, by filing a completed salesperson application (Form U-4 (PDF)*) and paying the required $40 licensing fee.

You may use advertisements and announcements to solicit investors for the offering; however, content restrictions apply. Any advertisements or announcements must be filed with the Securities Division at least five business days before they are used.

If the offering is not firmly underwritten, you may be required to establish a minimum offering amount. Under these circumstances, all funds received must be placed in an impound/escrow account at a bank or similar financial institution until the minimum offering amount has been raised. The financial institution cannot release the funds until authorized to do so by the Securities Division.

Resale Restrictions

If this registration is being used with federal Rule 147, then investors cannot sell their shares to any non-Washington resident until at least nine months after the offering has been completed.

Reporting Requirements

You must provide a securities sales report and updated financial statements to the Securities Division each quarter until the offering is completed.

If any event occurs that would materially affect the accuracy of the prospectus, you must immediately report this information to the Securities Division. The prospectus might require revisions to include the new information, and the revised prospectus must be used when soliciting new investors.


Word of Caution

This document is designed to acquaint the small businessperson with the different registration and exemption options available for raising capital through a securities offering in the State of Washington. It should not be relied upon to actually make a securities offering. There are many additional important issues, of which a person making a securities offering should be aware. This brochure summarizes only some of these issues.


Further Information

For more information on federal securities laws, contact the Office of Small Business Policy of the Securities and Exchange Commission (SEC):

Office of Small Business Policy
U.S. Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549-3628
Telephone: (202) 551-3460
Website: www.sec.gov/info/smallbus.shtml

The State of Washington maintains a home page on the Internet providing access to sources of information concerning the operation of businesses in the State of Washington. The website is located at access.wa.gov.

Information on how to prepare a business plan may be available through Small Business Development Centers which are located throughout the state.

A nonprofit organization of retired business persons called SCORE often operates programs to assist entrepreneurs. Location of chapters around the state usually can be found in the white pages of the telephone directory. The organization also maintains a website at www.score.org.

The U.S. Small Business Administration may also be able to provide assistance to the entrepreneur. Regional offices are located in Seattle and Spokane. The organization maintains a website at www.sba.gov.


Key Terms

The following definitions are included to help clarify some of the terms used throughout this webpage. These are working definitions only; for specific details related to these terms, please see the Washington securities laws and rules. Some terms are not defined, but have generally accepted usage.

Accredited investor: Any investor whose income, net worth, or business purpose meet certain requirements defined by the SEC. Banks, registered broker-dealers, insurance companies, investment and business development companies, certain employee benefit plans, and charitable organizations with assets over $5 million are considered accredited investors.

Accredited investors also include: directors, executive officers, and general partners of the issuer; persons with income greater than $200,000 in each of the two most recent years (or joint income greater than $300,000), and a reasonable expectation of the same income in the current year; and persons whose individual or joint net worth exceeds $1 million excluding the value of that person’s primary residence.

Common stock: An ownership interest in a corporation.

Consent to service of process: A consent to service of process form (PDF)* submitted by the issuer that allows the Securities Division to be served with legal papers on the issuer's behalf. This form must be filed for each financing option.

Debt security: A security in which the seller must repay the investor's original investment amount plus interest. A company can offer debt securities only when it can demonstrate that it has the ability to service the debt based on current earnings.

Disclosure document: The disclosure document distributed to potential investors is the primary source of information about your company. This document is also referred to as a prospectus or offering circular. In a private placement, it is generally referred to as a private placement memorandum (PPM).

Limited Liability Company: An unincorporated entity that combines the limited liability features of a corporation with the pass through taxation and structural flexibility of a general partnership.

Non-accredited investor: Any investor not included in the definition of an accredited investor.

Preferred stock: Stock that has priority over common stock as to dividend payments and/or the distribution of the assets of the company. Preferred stock can have the characteristics of either common stock or debt securities.

Promotional shares: Equity securities that were issued within the last three years, or that are to be issued, to certain founders or organizers of the issuer for less than 85 percent of the public offering price.

Selling expenses: Selling expenses include those costs that are directly related to issuing and selling the securities, such as underwriting and brokerage discounts and commissions, printing costs, and filing fees paid to the SEC and/or state securities divisions. Fees paid to attorneys and shares made available to underwriters are also counted as selling expenses.

Sophistication: The investor and/or his/her representative have sufficient business knowledge and experience in financial and business matters to be capable of evaluating the merits and risks of an investment opportunity.

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