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Promoters And California's Limited Offering Exemption

I was admitted to the bar the same year that the legislature completed its parturition of a new limited offering exemption under the Corporate Securities Law of 1968 - California Corporations Code Section 25102(f).  AB 1518, Cal. Stats. 1981, ch. 1120.  Section 25102(f) exempts the offer and sale of securities from the issuer qualification requirement established by Corporations Code Section 25110.

There are several conditions to the exemption.  Today's blog addresses only two of them as they relate to "promoters".  First, sales are made to not more than 35 persons, including persons not located in California.  Second, “all purchasers” must have either a preexisting personal or business relationship with the issuer (or its officers, directors or controlling persons) or by reason of their business or financial experience (or the business or financial experience of their professional advisers who are unaffiliated with and who are not compensated by the issuer or any affiliate or selling agent of the issuer, directly or indirectly) could be reasonably be assumed to have the capacity to protect their own interests in connection with the transaction.

The Commissioner of Business Oversight's rules allow promoters (among others) to be excluded from the 35 person count.  10 CCR § 260.102.13(d).  The Commissioner's rules further provide that the phrase "all purchasers" does not include  purchasers excluded from the count of purchasers.  10 CCR § 260.102.12(d)(2).  Thus, promoters are neither counted nor subject to the requirement of either having a preexisting relationship or experience.

So, who or what is a promoter?  I have discussed the term in other contexts.  See Just Who Is A Promoter And Why You May Want To Know.  In this case, the term Commissioner has provided a definition.  A promoter is defined as a person who, acting alone or in conjunction with one or more other persons, takes the initiative in founding and organizing the business.  10 CCR § 260.102.12(d)(2).

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California Securities Laws, Rule 260.012.12, Rule 260.102.13, Section 25102(f), issuer transaction, limited offering exemption, promoter, section 25110


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30172DBAB0084D3A8F39D7AF0A8E79BC.ashx Keith Paul Bishop
Partner at Allen Matkins
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