If you are involved in a new renewable energy company, you know it requires many resources, not the least of which is money. Prior to project financing, you have to rely on selling stock or debt of the company to fund the company. Whether you rely on family and friends, angel investors, venture, or some other avenue to raise your initial capital, you need to be aware of the many potential issues when offering and selling securities and be armed with information to deal with any such issues.
 A security is more than just common stock. While the formal definition is lengthy and technical, a security is basically any investment of money or services into a company or project where investors are relying on someone else (typically the company, but can be a partnership or joint venture) to produce profits in which such investors will share. Therefore, even money from your mother, brother and friends for founders stock and one-page promissory notes is a security and subject to these regulations.
 All securities issued by a company, in whatever form, must be registered with the U.S. Securities and Exchange Commission unless either the securities transaction is, or the securities themselves are, exempt from registration. The federal securities laws and SEC rules provide several specific exemptions from registration. The most widely utilized exemption from registration is what is known as the private placement exemption, or Reg D exemption, which is the focus of the remainder of this article. In addition to the private placement exemption, there are several additional exemptions described in the federal securities laws and SEC rules that are not discussed in this article, but may be available in specific situations.
The Reg D exemption is available to companies selling securities in private transactions to accredited investors.
 For an offering to qualify as private, a company may not use any form of general solicitation or advertisement to communicate the offer to potential investors. Companies may, however, hire licensed broker-dealers to assist in private transactions, which may help a company connect with potential investors. Using unlicensed broker-dealers, called finders, is very problematic and their involvement can often make an exemption unavailable. In our current social environment, which is becoming heavily influenced by social media&mdash;think Twitter, LinkedIn and Facebook&mdash;companies may be tempted to communicate offers to purchase securities in this way. Unfortunately, the use of social media may be deemed to be general solicitation, and may violate private placement rules. At this time, there is little judicial guidance regarding the use of social media for securities offerings, but companies should avoid social media as an avenue for offering securities. Other things to avoid are mailings to or meetings with people with whom the business principals do not have an pre-existing business relationship. For example, a company that is developing a new biomass harvester cannot send letters to every implement dealer in the area asking for an investment.
 The types of investors that qualify as accredited investors most commonly include a corporation, Massachusetts or similar business trust, or partnership, not formed for the specific purpose of acquiring the securities offered, with total assets in excess of $5,000,000; a director, executive officer or general partner of the company; a natural person whose individual net worth, or joint net worth with that person&rsquo;s spouse, exceeds $1million (exclusive of primary residence) at the time of the purchase; a natural person with income in excess of $200,000 in each of the two most recent years (or $300,000 joint income with such person&rsquo;s spouse); any trust with total assets in excess of $5 million not formed for the specific purpose of acquiring the securities; or an entity in which all the equity owners are accredited investors as defined above.&nbsp;
 In addition to the federal securities laws, companies issuing securities are required to comply with state securities laws, commonly called blue-sky laws. Securities issued pursuant to Reg D exemptions are considered covered securities and are not subject to registration in the states as long as the company complies with the notice provisions of any and all states in which securities are sold, not just the state in which the company conducts its operations. States&rsquo; notice requirements typically require a company to file a notice of sale with the state within a set amount of time after the first sale of securities in that state.
 The initial financing of a company can be very exciting, but can also be filled with pitfalls. It is important to be well advised regarding the potential risks when formulating a financing plan upfront, and to stick to that plan.
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Todd A. Taylor and Zachary D. Olson Attorneys, Fredrikson &amp; Byron P.A. <a href="mailto:ttaylor@fredlaw.com">ttaylor@fredlaw.com</a> <a href="mailto:zolson@fredlaw.com">zolson@fredlaw.com</a>

Using Private Placements for Initial Financing

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