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SCOR: Registration Instructions


This article is from the Investing Articles: Public Offerings: IPO and DPO series.

SCOR: Registration Instructions

This is part of a larger Initial Public Offering - IPO

The Small Business Investment Act of 1980 (contained in Section 19 of the 1933 Securities Act) made certain changes to the Federal securities law. Subsequent to these changes Regulation D became effective in 1982. Rule 504 was developed to make it easier for a company to raise up to $1,000,000 without Federal registration for an initial public offering IPO. Although, the SEC does need to be notified. It is within rule 504 that the SCOR registration developed. The firm must have at least 10% equity equal to the amount of capital being raised. It can offer either common stock, preferred stock, or debt. Any stock issued must be priced at a minimum of $5.00 per share for both investors and insiders.

In 1989 the North American Securities Administrators Association adopted the use of the Small Corporation Offering Registration (SCOR) for an initial public offering IPO. By 1992 it had come into its own. For companies that need to raise capital of $1,000,000 (in any 12 month period) or less, the SCOR offering is an excellent vehicle. The SCOR registration process is far easier and less complex than a full blown initial public offering IPO done under the Securities Act of 1934.

The problem most small businesses and almost all young businesses face is raising capital. Professional investors are usually not interested in these companies and investment banks won't underwrite an initial public offering IPO this small. The alternative is banks which will gladly loan you money as long as it is fully collateralized by the company assets and the business owner personally. In other words, no loan at all.

When a small business owner decides to undergo a SCOR offering, a simplified for U-7 must be completed. The U-7 resembles a detailed business plan more than a prospectus. And different states may specifiy different information which has to be contained in the U-7. This U-7 has to be submitted to each state in which the business intends to sell its stock. For reference purposes a Form D must also be submitted to the Securities and Exchange Commission (SEC). Most states will also require the filing of a U-1, a U-2, and a U-2a. Some will require additional forms and some state specific forms.

Many states are what is called "Merit" states. That is, they have to pass on the merits of the initial public offering IPO before they approve the offering. They must believe that there is some value to the potential shareholders.

When the regulators of each state receive the material, they will review it. Quite often, they will request additional information. This additional information could pertain to any area of the filing. However, most often it will reference financial data.

When the state securities regulators are satisfied with the initial public offering IPO and approve the filing, the firm may then begin selling the securities which are described in the offering. The company will now attempt to break escrow in an effort to raise the amount of capital (money) specified in the SCOR offering.

As previously mentioned, there are merit states and non-merit states. In merit states, the regulator may request any additional information that it feels is necessary to pass on the merit of the initial public offering IPO and make sure that there is full and fair disclosure. The state may restrict the initial public offering IPO according to its merit.

Examples of some of the restrictions a merit state may impose on the initial public offering IPO are the number and type of securities that can be sold and lock-in periods for officers of the firm who hold stock. A lock-in period restricts the period of time that an officer of the corporation can sell stock. Otherwise, unsavory individuals could sell stock in the company and then after the initial public offering IPO sell it at a profit and disappear or go bankrupt. Nevertheless, filers are able to sucessfully complete SCOR offerings in these states and the difficult standards don't seem to pose a problem for a legitimate initial public offering IPO.

On the other hand, in a non-merit state the regulators merely check to make sure that there is full and fair disclosure and the filer complies with the law's requirements.

While the regulatory hurdles are not a problem, small businesses are often very unsure of how to market the investment opportunity to potential investors in the initial public offering IPO.

The success of SCOR offerings varies widely by state. One of the major problems faced by business owners is how to market the initial public offering IPO once it is approved. This is an area Equity Analytics, Ltd. can help. We assist the company in finding a broker dealer to sell the offering.

Another problem faced by many business owners is the submission of faulty paperwork in the U-7 and other filing documents as well as the ommission of documents. This is another area in which Equity Analytics, Ltd. can help. We make sure that all the information is contained in the documents and that all the appropriate documents are filed for the initial public offering IPO in a SCOR offering.

The Pacific Stock Exchange will list SCOR offerings. This is a major comfort for business owners as shareholders may trade the securities in a public forum and it provides a market for the stock. However, to date no company that has been successful with a SCOR offering has been able to meet the listing requirements for the PSE. Nevertheless, it is inevitable that companies will soon be able to meet these requirements as more companies undergo a SCOR offering as an initial public offering IPO.


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