Nevada is growing! No one will dispute that fact. Many studies have documented the current growth of Nevada as being unprecedented. And along with growth come new business and investment opportunities. Approximately 3,700 new business filings a month are processed through the Commercial Recordings Division and numerous investment offerings and exemption filings are made with my Securities Division each year.
Through the use of technology Nevada has created an attractive and uncomplicated environment for starting small businesses, which create job opportunities and produce tax revenue for the state. Unfortunately, studies of small businesses show that four out of five businesses fail, and when a business fails, the principals who have invested their own money into the business or investors who have helped get the company started all lose. But when a small business succeeds and grows, those who took a chance can gain handsomely.
I support programs that assist small businesses to raise capital within the regulatory framework of Nevada. Small businesses are critically important to the Nevada economy, and I want to do what I can to assist them to get started and to be the one out of five that succeeds. Entrepreneurs can call my Securities Division to receive “hands on” assistance in completing registrations or obtaining exemptions for securities offerings. But companies issuing securities to raise capital should also be aware of problems and concerns that go with issuing stock.
One of the leading causes of business failure is insufficient start-up capital, and although there are other ways of obtaining capital, a common way is selling stock to investors. A few tips to companies thinking of a public offering: first, offering stock to the public is subject to detailed regulation under securities laws. Mostly the regulations require the company to inform potential investors about the company and its plans for growth. Prior to submitting an offering to the Securities Division, management should work closely with an accountant to determine that cash flow is sufficient to cover operating expenses for at least one year. Anything less can be insufficient to allow the company to get a real start. This is a “red flag” for serious investors. Second, if you are an owner looking for investor funds, committing your own funds is a good indicator of how serious you are about your business. Risking your own money gives confidence to others to invest in your business. Third, financial statements need to be current and an issuer should check with the Nevada State Board of Accountancy to ensure that his or her accountant is licensed to practice in Nevada. These are just some of the items that my office can discuss with the company and its management.
I also support small business outreach programs to facilitate a favorable environment for business to incorporate and attract capital in Nevada. The Nevada Securities Division, in association with the North American Securities Administrators Association (NASAA), recently approved changes to the Small Company Offering Registration (SCOR) form and its accompanying manual that make it more user friendly for both issuers and investors.
More than 1,100 companies across the country have sold shares in small businesses to the public utilizing SCOR. These businesses range from microbreweries to small banks and technology startups. For investors, an executive summary at the beginning of the SCOR document is now included. The document also includes the financial information and risks that investors and bankers need to make informed decisions. SCOR is designed to help small businesses raise capital with a minimum of red tape while adequately disclosing the risks of the offering to investors.
Not many small companies in Nevada have utilized the SCOR program, but by streamlining, we hope entrepreneurs wanting to go public will utilize SCOR to raise seed capital to expand their businesses. The SCOR form is basically a fillin- the-blank offering circular, or prospectus for investors. The· questions on the SCOR form have been simplified by reducing the amount of legalistic language. The manual has been updated with more “real life” examples to help prospective issuers complete the SCOR. The SCOR form can be used to raise up to $1 million every 12 months. An attorney is not required to complete the offering document, although if you are unfamiliar with the nuances of securities laws, it is advisable to seek the assistance of a securities attorney.
To facilitate stock sales of Nevada companies to residents outside of Nevada, a regional review can be coordinated with more than one state’s securities offices. The regional review provides a uniform state registration procedure designed to coordinate the blue-sky registration process of all states in the region. In addition to creating uniformity in the review, the program is designed to expedite the registration process, saving the company time and money.
I will continue to adopt initiatives that move toward the goals of assisting small businesses through the capital raising process. Small business issues are an important concern of my office, and I want to hear from small business owners about their needs as we fine-tune the regulation of start-up companies and capital formation in Nevada. To express your concerns or to request a copy of the SCOR form and manual, contact the Nevada Securities Division Web site at sos.state.nv.us.