Regardless of whether your considering an individual, a group of dentists, your at home anesthesiologist, or alternative financing models such as crowd funding, tribe funding, “donations”, and pre-selling DVDs, etc., (i.e. any non-accredited investor) then you MUST consider Regulation-D of the Securities Act.
The following is taken from the Securities and Exchange Commission’s website:
Under the Securities Act of 1933, any offer to sell securities must either be registered with the SEC or meet an exemption. Regulation D (or Reg D) contains three rules providing exemptions from the registration requirements, allowing some companies to offer and sell their securities without having to register the securities with the SEC. For more information about these exemptions, read our publications on Rules 504, 505, and 506 of Regulation D.
While companies using a Reg D. exemption do not have to register their securities and usually do not have to file reports with the SEC, they must file what’s known as a “Form D” after they first sell their securities. Form D is a brief notice that includes the names and addresses of the company’s executive officers and stock promoters, but contains little other information about the company.
In February 2008, the SEC adopted amendments to Form D, requiring that electronic filing of Form D be phased in during the period September 15, 2008 to March 16, 2009. Although as amended, the electronic Form D requires much of the same information as the paper Form D, the amended Form D requires disclosure of the date of first sale in the offering. Previously, disclosure of the first date of sale was not required. The Office of Small Business Policy has posted information on its web page about the filing requirements for the new Form D.
If you are thinking about investing in a Reg D company, you should access the EDGAR database to determine whether the company has filed Form D. If you need a copy of a Form D filed as a paper filing (which will include any Form D filed before September 15, 2008) that has not been scanned into IDEA, you can request a copy using our online form. If the company has not filed a Form D, this should alert you that the company might not be in compliance with the federal securities laws
You should always check with your state securities regulator to see if they have more information about the company and the people behind it. Be sure to ask whether your state regulator has cleared the offering for sale in your state. You can get the address and telephone number for your state securities regulator by calling the North American Securities Administrators Association at +1 (202) 737-0900 or by visiting its website. You’ll also find this information in the state government section of your local phone book.
For more information about the SEC’s registration requirements and common exemptions, Q&A: Small Business & the SEC.
Please keep in mind that these are U.S. laws if you are dealing with foreign investors including Canada then you factor in their security laws as well. Which may be even more strict or incompatible with U.S. law.
There IS a way to do this legally. There always is. Knowledge of the laws will help achieve the end goal of alternative financing. The exciting part is that the model is a blank page waiting to be written.