How to DPO in NM: The DIY guide to raising money
Daniel J. Van Orman is an expert in applying legal concepts for a better world. He holds a JD and Master of Studies in Environmental Law from Vermont Law School. Reach him on matters at the intersection of science, policy, law, and economics at email@example.com.
So, you lead a business, non-profit, cooperative or other entity in New Mexico, and you want to raise money but you aren't a venture opportunity. Could a Direct Public Offering (DPO) work for you?
A DPO is a legal registered offering (called a security) that bypasses onerous federal registration and reporting requirements via individual state registration.
What are their advantages? In contrast to typical securities, DPO's generally have no limit on the number of investors, are open to accredited and non-accredited investors, and can be marketed and advertised publically. For more legal information, check out our friends at Cutting Edge Capital.
How can your New Mexico entity do a DPO?
Small Local Offerings
New Mexico has a state securities registration exemption for Small Offerings by Issuers with Local Operations. An offering can qualify if, in total, it does not exceed $2.5 million and the following conditions are met:
• Legal entity's principal office OR place of business OR majority of employees OR assets are located in NM.
• More than half of the DPO proceeds must be used in NM.
• Offering document is delivered to each investor prior to sale.
The issuer must file a Form 202X no less than ten business days before the first sale and pay a filing fee of $350. To meet the federal filing exemption under SEC Rule 147, the security would be issued only to New Mexico residents.
To review: a local New Mexico entity with investors from NM can take advantage of the state's Small Offerings by Issuers with Local Operations and bypass federal and state registration, file a simple form, pay a fee, and be on their way to raising up to $2.5 million.
For organizations that don't meet the above conditions, they may have another option through New Mexico's Small Company Offering Registration (SCOR) program. SCOR is a simpler, uniform state registration for companies that limit the size or location of their offering to meet federal laws surrounding investment securities. These include SEC exemptions of Regulation D Rule 504 (no more than $1 million), Regulation A (no more than $5 million), or Rule 147 (intrastate, discussed and referenced above).
SCOR is set up to be easier than federal registration, which is a cumbersome and expensive task. A main component to the SCOR registration is the Form U-7 Disclosure Document. This form is meant to be a DIY tool, and the North American Securities Administrators Association (NASAA) details an instruction manual on their website. However, coordination with an attorney and CPA are still advisable.
For issuers making an offering in neighboring western states, the SCOR registration is streamlined through the Western Regional Review Program, linking Alaska, Arizona, Colorado, Idaho, Montana, New Mexico, Oregon, Utah, Washington and Wyoming. If you are raising money from people only among these states, SCOR is a better path than the usual federal requirements.
For more information about raising capital and more tips for investment, visit the publications page of Social Enterprise Associates, www.socialenterprise.net.
Social Enterprise Associates (socialenterprise.net) is a consulting firm leveraging the power of the marketplace to ‘do well by doing good'. Consulting has led clients to raise more than $100 million. We are the New Mexico point of contact for Slow Money, a national local investment movement. And, we are New Mexico's first registered ‘B Corporation'. Reach us at firstname.lastname@example.org.
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