The federal government and state governments each have their own securities laws and regulations, so a company selling securities must comply with federal and state securities laws. Thus a particular offering can be exempt under the federal securities laws, but still be subject to individual state laws.
Historically, most state legislatures have followed one of two approaches in regulating public offerings of securities, or a combination of the two approaches. Some states review small business securities offerings to ensure that such companies disclose to investors all information needed to make an informed investment decision. Other states also analyze public offerings using substantive standards to assure that the terms and structure of the offerings are fair to investors, in addition to the focus on disclosure. (In other words, bureaucrats are deciding what a good business deal should look like. Absurd, isn’t it? With all due respect to well-intentioned bureaucrats, how would Microsoft, Apple, etc. have initially looked to a risk-averse bureaucrat deciding on the worth of an investment?)
To facilitate small business capital formation, the North American Securities Administrators Association (“NASAA”), in conjunction with the American Bar Association, developed the Small Corporate Offering Registration (“SCOR”). SCOR is a simplified “question and answer” registration form that companies also can use as the disclosure document for investors. SCOR was primarily designed for state registration of small business securities offerings conducted under the SEC’s Rule 504, for sale of securities up to $1,000,000. Currently, (about) 44 states recognize SCOR. To assist small business issuers in completing the SCOR Form, NASAA has developed a detailed “Issuer’s Manual.” In addition, a small company can use the SCOR Form to satisfy many of the filing requirements of the SEC’s Regulation A exemption, for sales of securities of up to $5,000,000, since the company may file it with the SEC as part of the Regulation A offering statement.
To assist small businesses, some states coordinate SCOR or Regulation A filings through a program called “Regional Review.” Regional Reviews are available in the New England states, several western states, and many Midwestern states. Companies seeking additional information on SCOR, Regional Reviews or the “Issuer’s Manual” should contact NASAA, or drop us an e-mail asking for more information.