"All Purchasers" Does Not Always Mean All Purchasers

I started practicing law in the same year that California enacted a limited offering exemption for the offer and sale of securities in issuer transactions, Cal. Corp. Code § 25102(f).  Before then, issuers had to rely on California's very burdensome small offering exemption, Cal. Corp. Code § 25102(h) which required (and still requires) an opinion of a member of the California state bar.  Section 25102(f) continues to be widely used, even after Congress in 1996 preempted state authority to require registration of offers and sales of securities conducted in reliance upon Rule 506 of Regulation D. 

Section 25102(f) remains popular after more than four decades because it is not overly burdensome.   The Department of Financial Protection & Innovation has published a series of FAQs on its website to help those endeavoring to comply with the exemption.  Unfortunately, the Department's answers are not necessarily complete.  For example,

5. What are the requirements for claiming the Limited Offering Exemption Notice exemption?

There are four requirements to claim the Limited Offering Exemption Notice pursuant to Corporations Code section 25102(f). 
The four requirements are:

  1. sales of securities are limited to no more than 35 unaccredited investors, including those located outside California,
  2. each investor is required to have a pre-existing business or personal relationship with the issuer of the securities, or, in the alternative, can be demonstrated to be a sophisticated investor,
  3. advertising of the securities is prohibited, and
  4. at the time of purchase, the investor must not intend to resell the securities.
Section 25102(f)(2) does require:
All purchasers either have a preexisting personal or business relationship with the offeror or any of its partners, officers, directors or controlling persons, or managers (as appointed or elected by the members) if the offeror is a limited liability company, 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 assumed to have the capacity to protect their own interests in connection with the transaction. (emphasis added)

"All purchasers", however, does not necessarily mean all purchasers.    The Commissioner has adopted a rule, 10 CCR § 260.102.12(d), that states that the phrase "all purchasers" as used in Section 25102(f)(2) does not include purchasers who are not counted pursuant to either Section 25102(f)(4) or Commissioner's Rule 10 CCR § 260.102.13.