Paying People to Help You Raise Money When You Are Going Public

Who can you legally hire and pay commissions or fees to if they help you raise money when you are going public?

ANSWER:  If you are going public, You may only pay a commission or some other form of transaction based compensation, meaning compensation that is based upon the success of your actually raising money, to an entity that is registered broker/dealer.

It is easy to tell if an entity is in fact a registered broker/dealer. Just go to the website for the Financial Industry Regulatory Authority, or FINRA, and look it up. Here: http://www.finra.org/Investors/ToolsCalculators/BrokerCheck/index.htm
This is useful because you can also search to see if the broker/dealer or the persons you are dealing with at the broker dealer have ever had any legal or regulatory problems.

A word of caution here:  The commission or fees in a going public transaction must be paid to the broker/dealer entity and not directly to the persons working for the broker dealer.

You cannot pay "finders," "business brokers," and other similar individuals or firms to help you raise money in going public.

Individuals and firms that are not registered broker/dealers may offer to provide you with one or more of the following services when you are going public if you pay them a commission or any other fee based upon the success of the transaction: 

• Finding investors, even in a "consultant" capacity
• Making referrals to investors
• Engaging in, or finding investors for private placements
• Effecting securities transactions for the account of others for a fee, even when those other people are friends or family members
• Acting as "independent contractors," but are not "associated persons" of a broker-dealer
• In general, these persons are all acting as unregistered broker/dealers in that they:
• Participate in important parts of a securities transaction, including solicitation, negotiation, or execution of the transaction

Receive compensation for participation in the transaction depending upon, or related to, the outcome or size of the transaction or deal or other transaction-related compensation.  

ALL OF THESE ACTIVITIES ARE ILLEGAL.

DO NOT SIGN A CONTRACT WITH ANYONE OTHER THAN A FINRA REGISTERED BROKER DEALER TO PROVIDE YOU WITH THESE SERVICES IF YOU ARE GOING PUBLIC.

If you do, you are breaking the law and could suffer sever penalties.

Your Officers, Directors and Employees

The SEC has a special rule allowing you and other officers, directors and employees of your company to sell your securities without registering as a broker/dealer when you are going public.

Under this rule you and other officers, directors and employees of your company, called “associated persons” of the issuer by the SEC, can sell your company’s securities without registering as a broker/dealer in going public if you meet various requirements, the primary one of which in going public is that they cannot be compensated in connection with participation in the going public transaction by the payment of commissions or other remuneration based either directly or indirectly on transactions in securities.