Investment Full Disclosure
Karl Dakin
I help you overcome challenges to raising capital. Take advantage of my Motivated Money Method to identify those investor candidates that are most likely to invest. Top expert in fundraising.
A small business raising funding has a legal obligation to make ‘full disclosure’. They are required to bring to the investor candidate’s attention all ‘material’ information. The goal is to enable the investor candidate to be ‘fully informed’ before making an investment decision.
?Typically, the question of whether or not a small business met its legal requirements is only raised when the small business fails or is otherwise unable to return all of the original investment dollars to the investor. As a practical matter, if the investor is repaid their investment, they seldom seek legal claims for not receiving any extra money in the form of a return on the investment.
?What constitutes a full disclosure is often open for debate. I include anything that may cause the small business to fail along with anything that negatively impacts an assumption made in calculating the cash flow or income projections.
?The need for full disclosure varies with the ‘sophistication’ of the investor candidate. A person trained in investment or with deep industry expertise may be viewed as needing no disclosure at all. On the contrary, an average person with low income may require not only full disclosure but help in understanding investments and investing. Securities lawyers cautiously identify everything and anything that may go wrong.
?Despite best efforts to achieve full disclosure, the small business may still fail. When 9/11 occurred, which led to the failure of a business that I was leading, I reviewed the Statement of Risks that had been placed within the offering memorandum. Nowhere did we anticipate a major terrorist attack and all the consequences that followed. Similarly, very few people were prepared for COVID and its continuing destruction of businesses as evidenced over the next few years with commercial office building business failures. These ‘acts of God’ may not be predictable whereas storms, crime, and common disasters are likely enough to declare them.
?A claim for failure to make full disclosure may be part of a civil action brought by an investor or a civil or criminal action brought by a state or the federal government. The level of proof in a civil case is relatively low when using the accuracy of hindsight.
?The awareness of what is known by the business extends to each of its officers and directors/managers who are leading the business. The fact that one member of the management team did not know the information that should have been disclosed does not prevent them from being named as a co-defendant and possible civil liability.
?A leader of a small business may be able to reduce or avoid a claim for failure to disclose through the purchase of ‘director’s insurance’ or ‘errors and omissions’ insurance. This is not blanket protection and will not cover willful fraud.
?The biggest challenge may be leaving important information out of a pitch package. Willfully failing to disclose ‘known’ information – fraud by omission – has the same penalties as outright lying. Small businesses often know something that they consider general knowledge that does not require telling the investor again. It is recommended that the small business look at their offering from the perspective of a future judge or jury and assume that they do not know business, technology, markets, or investments.
??Successful Funding Show
?Michael Podolny will be the guest on today’s Successful Funding show at 8 am MST. Michael is the Founder and CEO of Theodora Africa – a nonprofit that trains women in Africa to be virtual assistants and then arranges the sale of their services to small businesses in the United States. The availability of these services can be a great help in filling the gap in support personnel while having a positive impact on the lives of these women in Africa.
?Devin Thorpe was my guest on my Successful Funding show last Tuesday. We had a very energetic discussion on impact investing and crowdfunding. Devin was very clear that it is possible to build wealth by investing in small businesses through crowdfunding. And, each operating small business has major impact on the community in which it operates. You may view the show in the posts on my LinkedIn profile at:
?The Successful Funding show will repeat weekly at 8 am MST on Tuesdays on my LinkedIn profile.
?Founded in FOCO
?I will be presenting a workshop on the topic of What is Your Funding Potential? on March 8 from 11:00 am to 12:30 pm in Fort Collins, Colorado at the Founded in FOCO event.
领英推荐
?SuperCrowd 2024
?I will be co-hosting the SuperCrowd 2024 event: “The Impact Crowdfunding Event of the Year” which will be held April 17th and 18th online.
?Motivated Money Half-Day Workshop
?Subscribers to the Instant Funding Newsletter are invited to attend a half-day workshop where I will present my Motivated Money Method to raise capital. Subscribers qualify for a 20% ($100) discount from the standard $500 price. Use the discount code: Instant Funding
?Thursday, February 29 -? 9 am to 1 pm MST - Zoom Online
?The workshop will instruct on the Motivated Money Method of raising capital that targets investor candidates who are 'most motivated' to provide needed capital. Attendees will receive a workbook, templates, and a video recording of the workshop. A single organization may have up to three representatives may participate for a single registration fee.
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Karl Dakin, the Capital Coach
Dakin Capital LLC
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I help you overcome challenges to raising capital. Take advantage of my Motivated Money Method to identify those investor candidates that are most likely to invest. Top expert in fundraising.
9 个月Small businesses must tell all when inviting people to become investors.