Qs privet investors want their money back first before an audit they can hide their profits in many ways till then.If the company shows a loss so do they. Before their is an audit you can hide a ton of stuff, the privet investors have more control then frank does.No privet investors puts up 2 mill a month and waits till 2008 to break even and waits 2,3,4,5 years plus to make money they want a return on their investment fast and they will get it before an audit you can bank on that. A privet investor is no different then a mob juice loan.
Read this it may help a little.
Private Placements
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The Need for Capital
Businesses of all size regularly require infusions of capital in order to break into the next plateau, penetrate new markets or to sustain overall growth. While there is a multitude of financing sources available to these business owners, each source has its own inherent limitations, requirements and benefits.
Dealing with commercial banks in a traditional lending scenario can be ideal for established companies with a proven track record of profitability. However, growing businesses do not have this same option do to the fact that they may not meet the strict requirements of most contemporary lending institutions. Although less seasoned than their established contemporaries, these up-and-coming companies still possess merit and creditability and fortunately, have practical options for financing. Private Placements are an attractive alternative for growing companies for a variety of reasons.
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What is a Private Placement?
A Private Placement is private investment capital invested in a company, usually from individual investors in the form of stock and sometimes bonds. In the United States, Private Placements do not need to be registered with the Securities Exchange Commission. Regulation D and Rule 4(2) of the Securities Act of 1933 are the most popular forms of non-public private placements. The process can also be referred to as a Private Stock Offering as well.
More than $400 billion in capital was raised in the Private Placement market during 2002. The majority of that equity came from pension funds, investment pools, banks and insurance companies. In total, there were just over 2,000 completed offerings. However, Private Placements do not simply favor small businesses. Larger corporations can reap the benefits as well because Private Placements are far less expensive and time consuming than public offerings. Because there are so many options for undertaking corporate financing it is essential that corporate officers carefully review their entire financial picture before embarking on a capital raise or a stock offering of any kind. In a brief overview though, Private Placements offer a viable form of business financing without the constraints of taking a company public and conceding control.
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Private Placement Benefits
Private Placements have a high degree of flexibility in regard to the amount of money that can be raised. Private Placements can range in size from less than $50,000 to upwards of $50 million. Private Placements come in a variety of forms and may consist of debt, equity or a combination of debt and equity financing.
The investors that fund the Private Placement are usually more "business friendly" than lending institutions or venture capitalists due to the fact that they are "hand-picked" by the company raising money for itself. The company can establish their own terms for return on investment. As long as these terms are fully disclosed and agreed to by all parties involved, a highly beneficial capital raise can be completed in a relatively short period of time. Of course, the more reputable the company and the more promising their outlook, the easier it is to complete the private placement. Like any other investment vehicle, participants still want to know that their money is invested wisely.
In addition to the more favorable return on investment, the Private Placement itself can be substantially faster and less expensive than seeking the assistance of a venture capitalist or selling the stock to the public in the form of an Initial Public Offering or IPO.
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What Businesses Qualify for a Private Placement?
A prime Private Placement candidate is a small business in its third stage of financing seeking enhancement of their existing capitalization for growth or expansion. Private Placements are also perfect for start-up companies that are in the process of product development but have already conducted market-feasibility studies and have established solid business planning.
Although infinite types of businesses can benefit from Private Placement financing, some specific examples include:
Restaurant chains seeking to open additional locations
Bio-tech companies seeking to transform its research into product sales
Real estate developers seeking financing for a particular project
Franchise operators seeking to add additional locations
Inventors seeking to turn an invention into product sales
Professional service providers such as nursing staffing or executive placement agency seeking to expand into additional markets
Retail chains seeking to expand product lines or locations
Auto dealerships seeking to add inventory or additional locations
Public companies seeking a cash infusion without the necessity of completing a secondary offering
Medical providers seeking to franchise their services
Raw material excavators such as minerals
Any company seeking to laterally expand by conducting its own manufacturing, packaging or distribution
Pharmaceutical or research companies seeking to further research and development
Private companies seeking financing to allow them to proceed with future financing such as bridge loans
Clothing designers seeking to expand their product line; manufacture and market products
Any company that has reached a growth plateau and desires to expand into additional markets
Real estate investment groups
Recording studios or producers seeking funding for a particular artist
Movie studios or entertainment producers seeking funding for film production
Communications providers intending to add cellular towers, satellite feeds or cable wiring
Product licensing firms seeking to add additional licenses to its stable
Internet or tech companies desiring to grow and develop
Hard product distributors such as vitamins and supplement companies
Types of Shells Can Vary Greatly
Trading shells come from companies that previously went public but have experienced financial hardship or even bankruptcy. They may or may not still be active companies and they may or may not be current in their SEC document filings. It is the responsibility of corporate counsel to "clean up" the shell; bringing SEC filings current and addressing the numerous regulatory requirements inherent in the process of a Reverse Merger. Counsel will also begin to open the lines of communication with the shareholder base in order to bring them current on the details of the Reverse Merger, educating and informing them of the intentions of the new company and acquainting them with the corporate officers.
Keep in mind that the former company attached to the shell may have been completely different than the one that has acquired it. Shareholders may have invested in a software company five years ago and now own shares of an automotive company. The previous business of the shell has relatively little to do with its current use.
Corporate officers who receive stock in the Reverse Merger do not receive immediately free-trading stock to ensure that they have a long-term perspective on the company. These shares fall under the Rule 144 transfer restrictions. The SEC has recently taken a clear position that these types of so called "free trading" shares obtained in a "shell" transaction do not qualify as free trading unless separately registered or held for a holding period of a minimum of one year and usually two years. Acquiring control of a "clean" trading company requires sophisticated, experienced counsel in the performance of due diligence.
Most Reverse Merger transactions are structured so that 90% PLUS of the outstanding stock will be held by the owners of the privately held company. In order to qualify to trade on most exchanges or over the counter, some amount (5% to 20%) of the total outstanding stock needs to be "trading stock" (not owned by insiders or company affiliates) for the public investors.
Restricted Stock
The U.S. Securities and Exchange Commission (SEC) has many rules and regulations that must be complied with. One of these regards the buying and selling of restricted stock. Restricted stock is stock that is not registered with the SEC, or stock held by insiders (even if registered). Insiders are generally directors, executive officers and persons or entities that they control or who control them. These persons/entities may sell stock under Rule 144 in any three-month period limited to the greater of: 1% of the outstanding shares of common stock and/or the average trading volume during the four calendar weeks preceding a sale.
Sales under Rule 144 must be made without violating: manner of sale provisions (in the market through a broker/dealer at current market prices), notice requirements (proper forms must be filed with the SEC under Rule 144 of the Securities Act of 1933 as well as certain reporting requirements under Rules 13 and 16 of the Securities Exchange Act of 1934), and the company must be current in its filing of the required SEC reports. Restricted stock can be sold or resold privately at any time. It cannot however, be sold through a stockbroker into the public stock market until the "restriction legend" is removed, usually by a Rule 144 transfer after a one to two year holding period or until the shares are fully registered.
One should not increase, beyond what is necessary, the number of entities required to explain anything
