The first step in preparing a Regulation D Offering is to set the transaction structure properly. The process is specific to the type of corporation that you have and whether you are preparing an equity or a debt offering. In an equity offering one of the first primary items that needs to be addressed is the share or membership unit structure of the company. In "C" Corporations, many early stage or new companies have corporate structures that incorporate a minimum amount of available share capital (the total pool of shares or units the company can draw from to issue to founders or sell to investors). Many companies opt for 1000-2500 total shares to keep their corporate structure simple. This type of structure is not the preferred stock structure for a Regulation D offering or for raising capital in general.
Re-setting your share capital is a simple process that is critical to having a clean transaction structure in the offering. This is also the time to set the share or unit price, determine how much of the company you are going to sell to investors, and make sure that the principals of the company have the proper amount of shares issued to them to assure they are retaining the amount of corporate ownership they want post-offering. You will also set the minimum offering amount and the maximum offering amount. The maximum offering amount is the total amount of capital you are seeking to raise. The minimum is the minimum amount of capital you need to move the company forward with its business plans (albeit on a smaller scale or with debt financing complimenting the investors equity). The minimum offering amount sets the effective range of the offering. Other pre-offering issues concern which program to use, minimum subscription amount per investor, and the effective term of the offering.
In a debt transaction the structuring is very straightforward - more so than an equity offering. You will set the debt offering structure - the amount of each note and the number of total notes offered to investors to reach your maximum offering amount. You will also set the annual interest rate return and set the term of the loan or "maturity date" of the notes.
For example - to raise $100,000 in debt you may sell 20 notes at $5,000 per note with an annual interest rate of 12% and a maturity date of 36 months. As in an equity offering you will set a minimum offering amount which will determine the effective range of the offering. Thus you may have a $20,000 minimum offering amount which would equal four $5,000 notes.
We guide clients through the pre-offering structuring phase in great detail. The offering framework created in this first step form the backbone of the entire investment transaction.
