The State of South Carolina is actively working to improve the business climate within its borders, particularly focusing on bringing innovation to South Carolina. Early in 2017, the South Carolina Department of Commerce published an Innovation Plan analyzing the current state of affairs and making recommendations for improving options for businesses.
In particular, the South Carolina Innovation Plan notes that many new businesses struggle to obtain sufficient capital from banks and traditional lending institutions, and instead are forced to turn to seeking venture capital through “angel grants” and other forms of direct investment. The plan further notes that due to the scarcity of capital within South Carolina and the increasing amount of time and resources required to locate and secure it, many new businesses are looking across state lines to secure the funding they need. While you may not need a commercial lawyer right now, when you begin to seriously think about raising capital, it can’t hurt to talk to one about the ins and outs of raising capital.
Registering to Raise Capital
Both federal and South Carolina securities laws have regulations requiring businesses to register with the government before offering securities in order to raise capital. However, these regulations were generally intended for large businesses that plan to raise large amounts of capital, and there are exemptions to the registration requirements that apply to most small and mid-sized businesses. Because the registration process is so expensive and time-consuming, finding and using an appropriate exemption to the registration requirement is typically a good first step.
For some businesses, a Private Placement of Securities or Private Equity Offering can be a good solution. Private placement is available to companies who are offering their securities for sale to a group of investors entirely within the State of South Carolina. Typically businesses take advantage of private placement when their investors will be family and friends, “angel investors,” or South Carolina institutions. Raising capital through a private placement does NOT require the business to register with the government, reducing the time and cost of raising capital. Private placement also allows the business to custom-tailor investment opportunities to targeted investors, as well as maintain the confidentiality of information that could otherwise be required to be disclosed in a public offering.
“Crowdfunding,” or securing small amounts of capital from a large number of investors, is one of the hottest topics in capitalization today. In 2013 the U.S. Securities and Exchange Commission removed its prohibition on businesses advertising the fact that they are raising capital without registering first. However, the SEC has been slow to implement rules governing capitalization techniques like crowdfunding, causing many states to create their own regulations. In South Carolina, qualified for-profit businesses can “crowdsource” up to $1 million annually without registering. To qualify, a business must be formed and based within the State of South Carolina, and the securities must be marketed and sold exclusively to South Carolinians. For the moment, that means internet advertising that could be viewed by someone outside the state is impermissible. Notice also must be provided to the State along with a $300 filing fee.
If you’re in the process of creating a business or expanding your current business, securing sufficient capital is likely one of your biggest headaches. Our firm specializes in helping South Carolina business owners successfully capitalize their businesses as efficiently and cost-effectively as possible. If you have questions about capitalization and would like to speak with one of our attorneys, contact Willcox, Buyck & Williams, P.A. today for a consultation.