Sunday, May 04, 2008

Small Business Capitalization

I was at an event at U.S. District Court the other evening, and the discussion topic turned to the federalization of criminal law and how just about everything is a federal offense these days. I remarked that, when clients approach me about raising capital, I tell them to deal cocaine; at least then they would know what they were doing wrong, and when they got caught, the punishment would be lighter than for a securities violation.

Nobody laughed. The problem was, it was no joke. The securities laws are so complex and draconian that it is virtually impossible not to run nastily afoul of them unless you spend all the money you raise on attorneys and accountants. I'm overstating, but I'm exasperated, and this is my blog. As for the so-called "safe harbors," they aren't safe; they're just less than certain death.

So if you own a business, squeeze it. Pare it down. Fund it with friends and family (although that will probably be subject to the securities laws too, so watch it). Maybe you can sell it to somebody else and let him worry about it. Just make sure you don't run afoul of the franchise/business opportunity regulations.

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