New York Business Lawyers

Raising Capital from Californian Investors? Navigate CA’s Limited Offering Exemption Notice

by / Friday, 30 November 2012 / Published in Venture Capital

By Kaiser Wahab and Lauren Mack

Companies seeking investor capital (startups, mature companies, etc.) need to pay close attention to complying with state and federal securities laws whenever their companies issue securities.  Failure to do so can destroy whatever hard work and planning had gone into complying with the securities laws in the first place.   And let’s face it, “Go West” applies as much today in finding investors as it did in finding gold over a hundred years ago.  As a result, many if not all capital seeking companies seek to tap the California investor population and they need to be familiar with California’s capital formation laws.

All shares or other securities issued by a business must either be registered or fall into an exemption on BOTH state and federal levels. Each registration exemption contains different restrictions on the amount that may be raised, who the securities may be offered and sold to, and other factors. The federal exemption generally relied upon by startups can be found in Section 4(2) of the Securities Act of 1933. If a startup wishes to sell securities in California, the state exemption typically be relied upon is Section 25102(f) of California’s Corporations Code.


To qualify for the Section 25102(f) exemption:

1)      The securities must not be sold to more than 35 persons, including those residing outside of California (TIP: “Person” in this context is defined under 25102(f) as a non-accredited investor, so while the wording of the statute implies that you may only raise capital from 35 investors total, that is not true if the issuer is raising capital from  so called accredited investor);

2)      All purchasers of the securities must either be a “sophisticated” purchaser or have a preexisting personal or business relationship with the company or its owners, officers, or directors;

3)      Each purchaser must buy the securities for his or her own account, without the intention to resell or redistribute them; and

4)      Sales and offers to sell the securities may not be made through any publication or advertisement.

Exemption Filing Requirements

In order to take advantage of the exemption, a qualifying company must file a Limited Offering Exemption Notice with the California Department of Corporations within 15 calendar days after the first sale of a security in California. The Notice must be filed electronically, unless the company selling the securities can prove that it would be an unreasonable burden or expense to do so. The “first sale” occurs when the company obtains a contractual commitment to purchase the securities. A new notice is not required for each sale as long as it is part of the same offering.

The Notice must be accompanied by a filing fee, which is calculated based on the value of the securities to be sold. The fee schedule is as follows (for 2012, you should review the current fee schedule with the California Department of Corporations):

Proposed Value of Securities

Filing Fee

$25,000 or less $25.00
$25,001 to $100,000 $35.00
$100,001 to $500,000 $50.00
$500,001 to $1,000,000 $150.00
Over $1,000,000 $300.00


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