Tag Archives: matheau stout sec

How Does a Foreign Private Issuer Go Public in the United States?

Foreign Issuers File F-1 Registration Statements to Go Public in the US

A Foreign Private Issuer (“FPI”) that wants to raise capital in the United States publicly for the first time must register its shares on SEC Form F‐1. An F-1 Registration Statement is similar to a Form S‐1 filed by US domestic Issuers in that it requires detailed disclosures about the FPI’s business operations and financials.

An experienced US securities attorney can help a Foreign Issuer draft an F-1 and respond to all SEC comments efficiently under a flat fee.  Once the F-1 is declared Effective by the SEC, a securities attorney can recommend a Market Maker to sponsor the Foreign Issuer for a FINRA ticker symbol so that its securities can be quoted on the OTCMarkets OTCQB or OTC Bulletin Board (“OTCBB”).

What Types of Securities Can a Foreign Company Register in the United States?

A Foreign Issuer may offer any type of securities that a US domestic Issuer is allowed to offer. In addition, an FPI may choose to offer its securities using American Depositary Receipts (“ADRs”). Most Foreign Issuers will choose to register their Common Stock in an F-1 Registration Statement, just like a US domestic Issuer.

Securities Lawyer for Foreign Companies Going Public in the United States

Management of Non US domiciled companies seeking to become publicly traded in the United States can contact OTC securities lawyer Matheau J. W. Stout, Esq. to discuss the time frame and costs involved with going public on the OTC Markets or OTC Bulletin Board via F-1 Registration Statement.

Qualified Foreign Issuers can later uplist to the OTCQX, NASDAQ or NYSE MKT when appropriate.  Matt Stout can be reached at (410) 429-7076 or mstout@otclawyers.com for a free consultation.

Selling Stock in Former Shell Companies Under Rule 144

Rule 144 is the most common exemption from registration of microcap stock, and is often cited by securities attorneys in legal opinions used to deposit restricted shares in OTCMarkets companies.

However, Rule 144 can never be used if the Issuer is currently a shell company.  If the Issuer is a former shell, Rule 144 can only be used by a shareholder if certain conditions apply.  These requirements for former shells are known informally as “The Evergreen Rule.”

What are the Requirements of the Evergreen Rule under Rule 144?

  1. The Issuer of the securities must have ceased to be a shell company;
  2. The Issuer must be “subject to” the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934 (“Exchange Act”).  This means the Issuer must be a “mandatory SEC filer” or “fully reporting.”;
  3. The Issuer must have filed all reports and other materials required to be filed by Section 13 or 15(d) of the Exchange Act, during the last 12 months, other than Form 8-K reports; and
  4. The Issuer must have filed current ‘‘Form 10 information.”  This includes audited financials and could be done in a Form 10, but is more likely achieved in a combination of other SEC filings, including a “Super 8-K.”

If the foregoing requirements of the Evergreen Rule are met, then Rule 144 might be available, subject to all other applicable Rule 144 conditions, such as Affiliate status, and holding period.

Section 4(a)(1) Alternative to Rule 144 for Current and Former Shells

In many cases, the requirements of the Evergreen Rule cannot be met.  For instance, if an Issuer is currently marked a shell company, or if a former shell is delinquent in its SEC filings, then Rule 144 cannot be used.   If the securities are greater than Two (2) Years old, Section 4(a)(1) may offer a solution.

Requirements of Section 4(a)(1) Legal Opinions

Matheau J. W. Stout, Esq. drafts Section 4(a)(1) legal opinions for shareholders who are not “issuers, underwriters or dealers.”   Because shell status is not an element of Section 4(a)(1), these legal opinions can issued for Non Affiliate shareholders in current shells or former shell companies.

Current information is also not an element of Section 4(a)(1), such that these opinions can also be drafted even when the Issuer is delinquent in its filings, and marked as a Yield Sign or Stop Sign at OTCMarkets.com.

Section 4(a)(1) is concerned with the shareholder, rather than the Issuer.   Section 4(a)(1) opinions cite case law extensively and are typically much longer than the average Rule 144 opinion, as they go into great detail when examining whether or not a shareholder can be classified as an issuer, underwriter, or dealer in securities.

Securities Attorney Drafting Section 4(a)(1) Opinion Letters for Shareholders

Shareholders with stock in current or former shell companies quoted on the OTC Bulletin Board or OTC Markets can contact OTC securities lawyer Matt Stout for a no cost review of their certificate and supporting documents at (410) 429-7076 or mstout@otclawyers.com.

 

 

What is a Resale S-1 Registration Statement?

In a Resale S-1 Registration Statement, securities previously acquired privately are registered for resale to the general public.

Who are the Selling Shareholders in a Resale S-1?

In a typical example, investors in a company’s Private Placement (“PPM”) are told that their shares will be “registered for resale” at a later date.  In a Resale S-1, these investors are referred to as “Selling Shareholders”, and their names are listed in a table, along with the number of shares, and an explanatory note detailing the method and date of purchase.  The PPM Offering Documents, including a Subscription Agreement, are usually included in the Resale S-1 as Exhibits.

In another example, shares previously awarded to consultants, founders or employees for services can also be registered for sale in a Resale S-1.  The supporting documentation showing the origin and history of those shares would likewise be included as Exhibits.

All of this Selling Shareholder documentation is reviewed by the company’s PCAOB auditor so that the cost basis, and value of consideration is included in the audit.

What Makes a Resale S-1 Different?

The main difference in a Resale S-1 is when the Selling Shareholders sell their shares, they keep all of the money from the sale,  and the company does not receive any funds.   Even so, the company typically pays for the cost of the Resale S-1 Registration Statement, including the audit.

How Does a Company Benefit from a Resale S-1?

One way a company benefits from a Resale S-1 is by demonstrating to future PPM investors that the company keeps its promise to later register shares.   It also benefits the company by creating a “Float.”  The Float is the block of non-affiliate, free trading shares available to trade “on the market.”

In order to justify the expense of preparing a Resale S-1, a company will typically also register a certain number of new S-1 shares itself.  When the company sells these newly registered S-1 shares to the public, the company keeps those funds.

Private Placement followed by IPO and Resale S-1 Combination

One of the most common strategies for going public on the OTC Bulletin Board or OTC Markets via S-1 Initial Public Offering (“IPO”) is to file a new S-1 Registration Statement following a Private Placement Offering.  This S-1 registers both new shares for the company to sell, and also includes Selling Shareholders who bought stock in the Private Placement (“PPM”).

Many companies use the strategy of filing a quick PPM for friends and family before filing an S-1 Registration Statement as way of obtaining some of the 35 non-affiliate shareholders Market Makers are looking for prior to sponsoring the company for a ticker symbol under 15c211.  This also helps to defray some of the administrative costs associated with going public.

In order for this strategy to be effective, the PPM documents and consideration needs to be in order so that the company’s PCAOB auditor can efficiently include the Selling Shareholders into the S-1 audit.  An experienced OTC securities attorney can help companies do both a PPM and a Resale S-1 from start to finish.

Securities Attorney for Private Placements and S-1 Resale Registrations

Matt Stout is a securities attorney focused on taking companies public on the OTC Bulletin Board and OTC Markets.   When companies engage Matt Stout as securities counsel, the PPM to S-1 process is handled efficiently and all representation is under an agreed-upon flat fee, which includes responding to all SEC Comment Letters.

Companies interested in learning more about Private Placement Offerings and S-1 Registration Statements can contact Matheau J. W. Stout, Esq. for a no cost consultation at (410) 429-7076 or mstout@otclawyers.com.

Do I Need 35 Shareholders Before Filing an S-1 Registration Statement?

No.  There is no minimum shareholder requirement to file an S-1.  Many startup companies with just one founding shareholder file S-1 Registration Statements as the first step to go public. So only one shareholder is required, along with audited financial statements, in order to file the S-1.

When are the 35 Shareholders Needed to Go Public?

The 35 shareholder requirement only applies at the time of the Company’s 15(c)211 application for a FINRA trading symbol, which a Market Maker does not sponsor until all SEC comments are cleared, and after the S-1 is declared Effective by the SEC.

Should a Company Acquire 35 Shareholders via Private Placement or After the S-1 is Effective?

While it is true that many companies acquire these 35 shareholders via Private Placement Memorandum (“PPM”) before the S-1 is filed, it is just as common for companies to sell free trading S-1 shares to friends, family and to the public as soon as the S-1 is declared Effective, in order to meet FINRA’s 35 shareholder threshold.

In many cases, it might be easier for the company to sell the S-1 shares after the Effective Date, since they are free trading and the investors may perceive less of a risk than buying restricted shares in the same company through a Pre-S-1 PPM.

The key is that those 35 shareholders are not required until sometimes months after the S-1 process is started, since the Market Maker cannot even sponsor the Form 15(c)211 application for the FINRA trading symbol until the S-1 is declared Effective.

Should We Delay our S-1 to Do a Larger Private Placement?

With that timing in mind, it makes little sense for private companies to wait forever to file their S-1 under the guise of attempting to sell more shares in a PPM.  Instead, some savvy companies considering an IPO via S-1 Registration Statement will use a Private Placement only to attract some already interested friends and family investors as shareholders so that they do not delay their S-1 audit.

Doing so allows those PPM friends and family shareholders to be listed in the S-1 as “Selling Shareholders” but also allows the S-1 audit to be completed without wasting a lot of time.   Since the audit is typically the most time-consuming part of the S-1, the sooner the PCAOB audited financials are ready, the sooner the company can go public.

OTC Markets Securities Lawyer for Companies Going Public

Matheau J. W. Stout, Esq. is securities lawyer with a practice focused on taking microcap companies public on the OTB Bulletin Board and OTC Markets OTCQB.  Entrepreneurs with questions about taking a company public via S-1 can contact Matt Stout at (410) 429-7076 or mstout@otclawyers.com for a no-cost consultation.

 

 

 

S-1 Registration under the Securities Act of 1933

An S-1 Registration Statement is the most common way for a microcap company to “go public.” The S-1 is filed under the Securities Act of 1933, which has two primary goals:

  1. To require that companies provide the public with financial and other significant information concerning securities offered for sale; and
  2. To prohibit “deceit, misrepresentations, and other fraud” in the sale of securities to the public.

The SEC accomplishes these goals by requiring companies to disclose important financial information through the registration of securities following a specific format, such as the S-1.

S-1 Registration Statements for Companies Going Public

More microcap companies have success “going public” on the OTC Bulletin Board and OTC Markets by filing an S-1 Registration Statement than by any other method.

The SEC reviews S-1 Registration Statements to make sure they provide transparent disclosure of important facts and audited financials so that the public is informed of all risks involved in investing in an S-1.

The process of preparing, filing and amending an S-1 based on SEC comments is well known by experienced microcap securities lawyers, like Matt Stout.

What Information Does an S-1 Registration Statement Include?

A properly documented S-1 Registration Statement will provide the SEC with all of the necessary facts, including:

  1. A description of the company’s assets, operations and business model;
  2. A description of the security, such as common stock, to be offered for sale;
  3. Information about management, including the officers and directors of the company; and
  4. Financial statements certified by a PCAOB auditor.

It is important to note that the SEC does not have minimum asset or operations requirements for a company to go public via S-1.   Even start up companies with no revenue and few assets are eligible to file an S-1 Registration Statement.  The only requirement is that the company’s audited financials and disclosures accurately reflect the truth.

SEC Comments and Amendments to an S-1 Registration Statement

An S-1 Registration Statement, including its disclosures, audited financials, and prospectus, becomes visible to the public on SEC.gov as soon as it is posted via the SEC’s EDGAR filing system.

The SEC’s Division of Corporate Finance reviews the S-1 within 30 days of filing and provides SEC Comments, which are requests for clarification and further information.   The company then revises its S-1 Registration Statement to answer the SEC’s questions by filing an S-1/A amendment on SEC.gov.   The SEC Comments, along with a company’s responses, are also made available to the public on SEC.gov after an S-1 is declared Effective.

The SEC Comment and S-1 Amendment process continues for as many rounds as necessary until the SEC is satisfied that the company’s disclosures and financials are clear and understandable to the public.  Once the SEC has approved the last S-1/A, the company files a Request for Acceleration and their S-1 is made Effective.

After the S-1 is Effective, the company’s securities lawyer works with a Market Maker who sponsors the company under 15c211 to obtain its FINRA trading symbol or “ticker.”

S-1 Lawyer Helps Microcap Companies Go Public on the OTC Markets

S1 attorney Matt Stout drafts and amends S-1 Registration Statements for microcap companies and start up entrepreneurs seeking to go public on the OTC Bulletin Board (OTCBB) or OTC Markets (OTCQB).  The S-1 process is handled under an agreed upon flat legal fee, that includes responding to all SEC comments and as many S-1/A amendments as are necessary for the S-1 to be declared Effective.

As part of the S-1 process, companies are introduced to all other service providers needed, including a PCAOB auditor, Transfer Agent, EDGAR filer, and Market Maker who sponsors the company for its FINRA trading symbol after the S-1 is declared Effective.

Entrepreneurs interested in learning more about going public via S-1 Registration Statement can contact OTC securities attorney Matheau J. W. Stout, Esq. at (410) 429-7076 or mstout@otclawyers.com for a free consultation.

 

 

 

Broker and Finder Registration Under the Securities Act

Many transactions in the OTC Markets involve the work of Brokers, Finders and other Intermediaries serving as Consultants.  Microcap companies often engage consultants to assist in marketing, investor relations, raising capital and introducing or closing M&A transactions.

Most often, consultants are not registered broker-dealers with the SEC.  In many cases, registration as a Broker is not required.  However, depending on the language of the agreements, how consultants are paid, and the actual work performed, there may be occasions when SEC registration is either advisable or mandated under the Securities Act.

Who Must Register with the SEC as a Broker?

Section 3(a)(4)(A) of the Securities Act of 1933 defines a “Broker” broadly as “any person engaged in the business of effecting transactions in securities for the account of others.”

Examples of Persons Who May Need to Register as a Broker

In its Guide to Broker Dealer Registration, the SEC provides examples of certain individuals or businesses that may need to register under the Securities Act.  In typical microcap OTC Markets transactions, these may include “Finders” or “Consultants” if their activities include the following:

  1. Finding investors or clients for registered broker-dealers, investment companies (or mutual funds, including hedge funds) or other securities intermediaries;
  2. Making referrals to registered broker-dealers, investment companies, etc., or splitting commissions with them;
  3. Finding investment banking clients for registered broker-dealers;
  4. Finding Investors for “Issuers”, even in a consulting role;
  5. Engaging in, or finding investors for, venture capital or “angel” financing rounds, including private placements (PPMs);
  6. Finding buyers and sellers of businesses in reverse merger or acquisition transactions when the sale of securities (debt or equity) is involved;
  7. Acting as “Placement Agents” for private placements of securities;

How to Tell if a Finder Should Be Registered as a Broker with the SEC

If consultant fits into one of the examples above,  the SEC looks at the actions or duties the person or business actually performs to determine if registration as a Broker is necessary.  Some of the questions the SEC considers when examining the conduct of Finders or consultants include:

  1. Does the consultant participate in the solicitation, negotiation, or execution of the securities transaction?
  2. Does the consultant’s compensation depend upon, or is it determined by the outcome or size of the transaction or deal?
  3. Does the consultant receive trailing commissions, such as 12b-1 fees?
  4. Does the consultant receive any other transaction-related compensation?
  5. Is the consultant engaged in the business of effecting or facilitating securities transactions or is this a one-time deal?
  6. Does the consultant handle the securities or funds of others in connection with securities transactions?

According to the SEC’s compliance guidelines, if a consultant answers “yes” to any of these questions, they may need to register as a Broker.

Brokers Generally Must Register with the SEC under Section 15(a)(1)

Section 15(a)(1) of the Securities Act generally makes it unlawful for any Broker to “effect any transactions in, or to induce or attempt to induce the purchase or sale of, any security” unless that Broker or dealer is registered with the SEC under Section 15(b) of the Securities Act.

Microcap Securities Attorney Matt Stout

OTC Bulletin Board and Pink Sheet Issuers and Consultants seeking compliance with SEC guidelines can contact securities regulation lawyer Matt Stout for a review of business practices, as well as existing contracts and agreements to determine if registration as a Broker under Section 15(b) is necessary at (410) 429-7076 or mstout@otclawyers.com.

 

What are the General Conditions for a Regulation S Offering?

What is Regulation S?

Under Regulation S, certain offers and sales of securities occurring outside of the United States are not subject to the registration requirements contained in Section 5 of the Securities Act of 1933 (“Securities Act”).

Regulation S sets forth some non-exclusive safe harbors for extraterritorial offers, sales, and resales of securities under Rules 903 and 904 of the Securities Act.

General Conditions of Regulation S Offerings

In general, an offering may qualify for an exemption from registration under Regulation S if it meets the following two conditions:

  1. The offer or sale is made in an “offshore transaction”; and
  2. There are no “directed selling efforts” in the United States.

What is an Offshore Transaction under Regulation S?

An Offshore Transaction under Regulation S is defined as one in which:

  1. The offer is not made to a person in the United States; and either
  2. The Buyer is outside the United States, or
  3. The Seller and any person acting on the Seller’s behalf reasonably believe that the Buyer is outside the United States; or
  4. The transaction is executed in, on or through a physical trading floor of an established foreign securities exchange that is located outside the United States; and
  5. Neither the seller nor any person acting on its behalf knows that the transaction has been pre-arranged with a buyer in the United States.

What are Directed Selling Efforts under Regulation S?

Under Regulation S, Directed Selling Efforts refers to any activity related to “conditioning the market” in the United States for any of the securities being offered in reliance on Regulation S.

An example of Directed Selling Efforts could include placing an advertisement in a publication “with a general circulation in the United States” that refers to the offering of securities being made in reliance upon Regulation S.

Another example of Direct Selling Efforts could be the use of a website directed to US Persons, which does not include express disclaimers stating that that Reg S Offering is not intended for or available to US Persons.

Regulation S Securities Attorney Matheau J. W. Stout, Esq.

Securities lawyer Matt Stout is available to answer questions regarding compliance with Regulation S Offerings and the process of clearing and depositing restricted stock sold under Reg S at (410) 429-7076 or mstout@otclawyers.com.

OTC Bulletin Board and OTC Markets Issuers seeking advice on a Regulation S Private Placement directed to Non US Persons can contact Matheau J. W. Stout, Esq. for a free consultation to discuss best practices for the PPM.

Rule 144 Holding Period for Stock-for-Stock Acquisitions

Reverse Mergers of OTC Markets microcap companies are typically achieved using a stock-for-stock exchange under which the public company issues restricted stock in exchange for the private stock of the company being “vended in.”

Holding Period of Private Company Stock Does Not Tack under Rule 144

Shareholders in the private company may have already held their private stock for many years prior to the reverse merger.  Thus these private shareholders are often under the mistaken but intuitive impression that they can tack their ownership of the stock in the private company prior to the reverse merger in order to meet the holding period requirement under Under Rule 144.   However, this is not true.

Rule 144 Holding Period Starts Upon the Closing of the Share for Share Exchange

In a stock-for-stock acquisition or reverse merger achieved via a share exchange, the date of closing determines when the Rule 144 holding period starts.  Why?  Because the shareholders receiving OTC Bulletin Board or OTC Markets Pink Sheet public company shares are not at risk until the transaction actually closes and the public company’s shares are actually issued in exchange for the private company’s shares.

The Date of the Merger Agreement Does Start the Rule 144 Holding Period

For example, if the closing of the reverse merger will be delayed until the private company’s financials are audited, then the date of the Merger Agreement or the 8-K announcing the proposed Merger will not determine the start of the Rule 144 holding period.

When the closing is delayed for any reason, the Rule 144 holding period for those receiving the public company’s stock will not start until the reverse merger closes because the recipients will not be at economic risk until that time.

Rule 144 Securities Attorney Opinions by Matheau J. W. Stout, Esq.

Rule 144 has many nuances and experienced securities attorneys issue legal opinions only after a thorough review of all shareholder documents and Issuer filings.   Shareholders seeking Rule 144 or Section 4(a)(1) legal opinions can email documents to OTC securities lawyer Matt Stout at mstout@otclawyers.com or call (410) 429-7076 for a no cost review.

Tacking of Rule 144 Holding Periods for Distributions of Stock

Do pro rata distributions of restricted stock from a corporate entity shareholder to its individual shareholders affect the Rule 144 holding period?

No.  Under Rule 144(d), the holding period of the corporate entity shareholder may be tacked onto the holding period of an individual shareholder who receives the distribution of restricted stock.

Documenting the Origin and History of Rule 144 Restricted Stock

In order for a Rule 144 opinion letter to be issued by an experienced OTC Markets Pink Sheet and Bulletin Board securities attorney like Matt Stout, the shareholder must provide documentation showing the origin and history of the shares.  The main task of an OTC securities lawyer issuing Rule 144 legal opinions is to confirm when and how the securities were first issued, and then to track every transaction from that point forward.

Rule 144 Securities Attorney Matt Stout Drafts Legal Opinions for Shareholders

OTC securities lawyer Matheau J. W. Stout, Esq. reviews documents at no cost in preparation for drafting legal opinions under Rule 144 and Section 4(a)(1) for Pink Sheets and OTCMarkets OTCQB stocks.   Shareholders can email certificates and Rule 144 documentation to mstout@otclawyers.com or call Matt Stout at (410) 429-7076 to discuss Rule 144 and clearing restricted stock.

Tacking onto the Holding Period of Convertible Notes under Rule 144

Does Accrued Interest Affect the Holding Period Under Rule 144(d)?

When Convertible Promissory Notes with accrued but unpaid interest are exchanged for stock in a public company, the Rule 144 holding period for the Notes can be tacked to the holding period for the stock under Rule 144(d)(3)(ii) only if the exchange consists only “of other securities of the same Issuer.”

That means no additional consideration can be paid in the exchange other than the securities themselves and is consistent with Section 3(a)(9) of the Securities Act of 1933,

Accrued Interest is Not Considered Additional Consideration Under Rule 144

This brings up the question of whether or not accrued but unpaid interest on the Note is construed by the SEC as additional consideration inconsistent with Rule 144(d)(3)(ii).

The SEC’s position is that the right to receive payment for the accrued interest is not additional consideration, and the holding period for the Convertible Promissory Notes can be tacked to the holding period for all shares of stock received in the exchange.

Rule 144 Securities Lawyer Opinion Letters for Debt Conversions

Matheau J. W. Stout, Esq. reviews Notes at no cost in preparation for issuing Rule 144 legal opinions for debt holders in OTC Markets and OTC Bulletin Board companies.  Debt holders can email documents to mstout@otclawyers.com or call Matt Stout at (410) 429-7076 for a free consultation on Rule 144, or on the Section 4(a)(1) alternative to Rule 144 if the securities are at least 2 years old.