When “All” Doesn’t Necessarily Mean “All”


In Who Can’t Raise Capital?: The Scylla and Charybdis of Capital Formation, 102 Ky. L.J. 1 (2013-2014), Duke University Professor James D. Cox tackles the widespread criticism of state blue sky laws as barriers to capital formation.  Along the way, he critique’s California’s limited offering exemption (Corp. Code § 25102(f)) as follows:

It is ironic, if not paradoxical, that the hotbed of entrepreneurism, and one of the most resilient economies during the financial crisis, California, is among the most restrictive states in the scope of its exemptions. California limits the exemption to thirty–five persons (including those outside of California) and bars general solicitation and advertisements in connection with the offering.  What makes this California exemption restrictive is that each of the purchasers either must enjoy a personal relationship with the issuer or be reasonably assumed to have the capacity to protect his own interest in the transaction.  Thus, unlike Massachusetts or Texas, the exemption does not afford a means for the issuer to distribute any part of its offering to the residual class of investors.

102 Ky. L.J. at 10 (footnotes omitted).  While it is true that California’s statute refers to ”all purchasers,” the phrase “all purchasers” doesn’t really mean all purchasers.  Rule 260.102.12(d)(2) provides that the phrase does not include purchasers excluded from the 35-person count either by virtue of Section 25102(f)(4) or Rule 260.102.13.  Thus, the statute is not as restrictive as it may seem.

Professor Cox also doesn’t mention the exemption in Section 25102(n) which dovetails with the federal exemption in Regulation CE.  That exemption does permit a limited general announcement.  See California’s General Announcement Exemption.



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