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Taxation, for example, is eternally lively; it concerns nine-tenths of us more directly than either smallpox or golf, and has just as much drama in it; moreover, it has been mellowed and made gay by as many gaudy, preposterous theories. ~H.L. Mencken

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There are many resources for all types of assistance available to the aspiring entrepreneur. Since so many people are going into business for themselves, the business of helping small businesses has become big business. Nearly 20 percent of white collar workers ousted during the recent rash of corporate downsizings are starting their own businesses. In fact, at any given time, 3 percent of the workforce is involved in startups--making the startup business a $30 billion per year industry. To serve the needs of this growing entrepreneurial marketplace, numerous agencies and programs have been developed including:

* Small Business Administration
* Small Business Innovation Research (SBIR) grants
* Department of Commerce, Economic development boards
* Entrepreneurial development councils
* Technological development authorities
* Small business development centers
* Community colleges
* Research centers
* Universities
* Incubators
* Multiple sources of professional assistance.


Entrepreneurs have two funding strategies in today's financial market, big deals or small deals. On the high end, those offerings in excess of $1 million, there are private placements, venture capitalists, mutual funds, and IPOs available to the well known or well connected entrepreneur. But because of the risks involved and their own high overhead, most mutual funds and VCs generally do not become involved in offerings less than $1 million. Smaller offering are left to low end deals: informal "handshake" deals between family, friends, and acquaintances; as well as government loans and SBIR grants. This capital gap suffocates the true entrepreneurial spirit when these high impact companies need help the most. There is no shortage of capital, just the lack of a cost effective mechanism to access the capital.


UPOS allow entrepreneurs to take their companies public without the high cost and headache of a traditional initial public offering. As an alternative to the traditional initial public offering. The UPO works within the framework of exemptions created by the Securities Exchange Commission (SEC) to allow small companies to sell their stock directly to public informal investors.

These exemptions simplify the offering process by eliminating the many limitations regarding registration, disclosure, distribution and solicitation of shares. The UPO opens the door for different types of investors, regardless of their qualifications and without limit on the number of investors involved.

What is difference between an IPO and a UPO?

The IPO differs from the UPO primarily in its use of underwriters, SEC registration, and listing on conventional stock exchanges. Business owners involved in their first IPO never cease to be amazed at the time and expense required to prepare and file a registration statement and to process it through the SEC. The investigation, preparation, and processing are all quite extensive; the entire process generally takes two to four months and can cost hundreds of thousands of dollars to complete an IPO. The time and costs required to complete a UPO are a fraction of the IPO's, making the UPO affordable to most small businesses.

What is Rule 504 of Regulation D?

The failure to achieve a uniform limited offering exemption (ULOE) among states led to the creation of a uniform state and federal exemption scheme in 1980. The SEC adopted Regulation D in March 1982 to help differentiate between public and private offerings. Since September 1983, nearly 40 states have adopted ULOE in one form or another or in an exemption similar to Regulation D.

Regulation D consists of Rules 501 through 506 and provides a regulatory safe harbor for certain categories of financing, on the theory that offerings made to persons who are financially sophisticated and have access to the information that a registration statement would otherwise provide do not require the protection of formal registration. Regulation D represents an implicit recognition that certain offerings are unduly burdened by complicated and expensive regulatory processes.

In the past, small companies claiming exemption under Rule 504 of Regulation D could only sell up to $500,000 in securities a year, or up to $1 million if they registered with state securities regulators. In 1992, amendments were made to Rule 504 easing the requirements for small offering exemptions. The cap on the amount of capital raised in a 12-month period was increased from $500,000 to $1 million. The 1992 amendments also removed limitations on general solicitation of informal investors for offerings, allowing the stock to be openly advertised. In addition, informal investors buying securities now receive freely transferable securities.

By filing the Form U-7 along with Form D of Regulation D, companies are automatically exempt from SEC federal registration. In order to qualify for these exemptions, however, there are certain limitations that must be met. The company offering the securities can pay no commissions except to state-registered broker-dealers or agents. The price per share must be at least five dollars. There are also "bad boy" provisions which prevent the offering of the company's securities if the issuer, directors, officers, or 10% of the stockholders have been convicted within the past five years of securities related violations or felonies.

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