California corporation offering stock to accredited family and friends


I recently incorporated (c-corp) in California and now want to sell initial stock to my co founders, all have an active role in the company (directors). One guy is from Maryland, I am here in California the rest is German living in Germany. Looking at the SEC definition of an accredited investor, I can say everybody is accredited, investment is low (below 100k total), We do not intend to go public ever, nor do we intend to do private offerings or sell stock to non-accredited investors, and after reading about exemptions from SEC registration, I figured I fall within the federal incorporation exemption.
Do I have to file anything with the state (California, Maryland?)(exemption notice?, regulation D?), or can I just sell the shares? Would the SEC even care about the internationals?
(I will probably have to ask a lawyer, but I would like to read about what you guys think of this or know of this)


asked Jul 10 '11 at 11:37
6 points
Get up to $750K in working capital to finance your business: Clarify Capital Business Loans

1 Answer


I Guess I figured it out...

Since nobody answered, I will do it myself (for those who have formed a corporation and did never hear about securities laws better check... no guarantee for the accuracy of this answer is given)

So for everybody else here the answers:

1) Nothing is required for the Germany residents

2) for the Maryland resident following is required if he would buy more than 150k worth of shares

Section 11-602(9) and Regulations
If the aggregate dollar amount of the securities offered everywhere exceeds $150,000 in any
transaction under the Maryland Limited Offering Exemption (MLOE), the issuer shall deliver this
Notice to the Securities Commissioner by the end of business on the fifteenth day after the first sale
of securities in Maryland. This Notice shall be considered filed with the Division for purposes of
MLOE as of the date the Division receives the Notice, Form U-2 (Uniform Consent to Service of
Process), and filing fee of $400 paid by check. Make checks payable to "Office of the Attorney
General", and submit to “Maryland Division of Securities, 200 St. Paul Place, Baltimore, Maryland
21202-2020”. For copies of the statutes, regulations, and forms, contact the Maryland Division of
Securities at 410-576-7050.

3) for the california resident a LOEN notice is required under Section 25102(f) of California’s Corporations Code

"In California, founders typically use the registration exemption found in Section 25102(f) of California’s Corporations Code (see the next section for the full text). Section 25102(f) grants the issuer (the startup) an exemption from securities qualification for certain limited securities offerings.

As part of the exemption, founders in California must file a 25102(f) notice, also called a “Limited Offering Exemption Notice.” "
see 4) These transactions are exempt under federal law:
The federal exemption most likely available for founders is Section 4(2) of the Securities Act of 1933, while the state exemption is determined by the particular state’s law.

answered Jul 13 '11 at 10:10
6 points

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