Capital Access Companies
At one time or another, your company has likely considered raising capital. There are so many options. Bank loans, friends & family, hard money loans, convertible debt, equity, crowdfunding and even credit cards. There are many routes and one additional way that you can look into raising capital is through a Capital Access Company.
What is a Capital Access Company?
A capital access company is a business or group of investors that lends a certain amount of money to a company, typically a small start-up organization.
The new business may be seen as having the potential for long-term growth but may not have a large amount of capital when they start operations.
Some examples of a capital access company include but are not limited to an investment banking firm and a group of individuals who provide individual capital in the business in exchange for a portion of the businesses’ profits.
Capital Access Requirements
In the state of California, there is a Capital Access Company Law, often known as CACL. The CACL states that a capital access company is limited to primarily providing assistance to small businesses in California that meet certain criteria. The assistance can be either financial or managerial in nature. In addition, one requirement of the organization receiving the assistance is that they have a significant connection to California. For example, the company can be headquartered in California or conduct the majority of their business within the state.
Furthermore, the CACL places obligations on the board of directors, executive committee, or any other regulatory board of the company in regards to approving an investment contract between an organization and any individual who will be making recommendations regarding investment funds.
However, the CACL and the CACL’s rules do not limit what a fund manager can earn from the Capital Access Company for investing funds.
Other Requirements
There are several other factors that the CACL has implemented. These rules include but are not limited to: the securities of the Capital Access Company can only be sold to accredited investors; the business may not issue redeemable securities; a minimum of 80% of securities must be held either by California residents or an investor who has a significant business presence within California; and the investment of funds by a Capital Access Company are limited by and subject to provisions of the CACL and the Investment Company Act.
At the same time, the business must have a minimum net worth of $250,000, excluding any funds that are designed to be invested in small companies; at least $5 million worth of funds before a license is issued; and enough capital to cover three (3) years of expenses.
Furthermore, all directors, officers, and controlling persons of the company must be in good financial standing and able to perform both their individual duties and the company business.
Conclusion
If someone works for a small business or is looking for investors and is unsure how to go about raising funds, it can be useful to speak with a business attorney. Doing so will allow the company or individual in question to get a better idea of what their options are. At the same time, the lawyer can explain the correct legal procedure for getting new capital. Finally, an attorney may be able to review any challenges of what the business is facing and explain all the legal consequences of any action.