Question About Rules on Raising Private Money

[Chris Fennimore]

Hi, I'm relatively new to BP and have searched around the forums for an answer to this, but couldn't find a definitive response.  My partner and I have been buying rental properties in Albuquerque for several years. Three years ago we started raising money from close friends and family.  They are debt partners who sign a promissory note.  We've done well and have a solid track record, but have kind of hit our limit within our close circle and would now like to reach out to other people.  What are the rules on soliciting money? I believe we can't advertise or put up a website without filing with the SEC, but are their other restrictions if we are just finding potential debt partners via networking?  I would hate to run afoul of the fuzz right off the bat.  

On that note, any general recommendations or good articles on how to find potential investors?   Thanks for the help!

[Don Konipol]

There are only two ways to legally utilize "general solicitation and advertising" as it pertains to raising capital for a securities offering.  The first is to register your offering with the SEC (for interstate offering), or a state securities agency ( for intrastate offering).  The second is to have a private offering under Regulation D Section 506 (c), which does not require registration, but does require filing with the SEC, and allowing only accredited investors to participate in the offering.  506 (c) also does not allow for investor self accreditation, shifting the burden of verifying investor accreditation to the securities issuer.

What you have been doing up to now, in a legal sense, is raising capital in a private offering, without the benefit of utilizing the Reg D or Reg A Safe Harbors, which is quite typical and acceptable for raising capital from people you have an existing relationship with.