SCOR vs. Private Placements. Part 2
Description
This article is from the Investing Articles: Public Offerings: IPO and DPO series.
SCOR vs. Private Placements. Part 2
Private Placements Companies registering for a private placement must file different disclosure documents in each state, which are often based on different exemption provisions. This creates a lot of repetitive paper work. Registration documentation at the federal level for public offerings is more complex and expensive, and is subject to SEC review.
SCOR SCOR standardizes the state filing form or disclosure document with Form U7. Form U7 asks 50 questions that are similar to a business plan. This hassle-free process helps eliminate hefty attorneys' fees to complete registration, (although a review is highly recommended to get through the registration process.) In addition, audited financial statements are not required for offerings under $500,000. The registration could become effective 30 days after filing with your state. The U7 is not filed with the SEC. Instead, a form entitled Form D is filed under Rule 504. This simplified process reduces a company's legal and accounting fees up to 75%, making SCOR a much preferred, simplified method of raising equity capital for many companies.
SCOR Program Helps Small Businesses Go Public Economically
Many small business owners dream of taking their company public. For many businesses, those dreams can now become reality under a program from the Securities & Exchange Commission (SEC), called Small Corporate Offering Registration (SCOR).
SCOR offers small businesses a low-cost, low-hassle alternative to filing a traditional IPO or PPO. Using SCOR, businesses can raise up to $1 million in equity capital annually for business startup, development or growth with a self-directed DPO.
An SEC-spearheaded task force developed SCOR in 1992 as a way to help small businesses gain easier access to equity capital, while satisfying SEC requirements. The goal was to devise a filing process simple enough for an entrepreneur, his corporate attorney and his CPA to complete, yet thorough enough for full disclosure. Out of this process, SCOR was born.
SCOR caters to entrepreneurs, promoters, attorneys and accountants who are not securities specialists. The program works best for companies who are required to be registered under state securities laws, and whose securities are exempt from registration with the SEC under Rule 504 of Regulation D. Companies can use SCOR to sell up to $1 million of common stock, preferred stock, options, warrants, rights, notes or other debt securities every 12 months.
Companies who wish to take advantage of the SCOR program are required to file two forms, Form D and SCOR Form U-7. The SCOR Form U-7 was developed specifically for SCOR and is uniform for all states. It has 50 questions and serves as the primary registration document. Companies file Form U-7 with each state in which they plan to sell, and file Form D with the SEC.
SCOR is advantageous over traditional IPO and PPOs because it allows companies to have greater access to capital, gives them the ability to select shareowners and custom fit their financing needs. It permits companies greater latitude to determine the price, pick the team and control the costs, and allows them to create a direct relationship with shareholders.
Rules for filing a SCOR are also significantly less restrictive than doing a private placement offering (PPO). For starters, the resale of securities is permitted. Stock sold under a SCOR can be freely traded in the secondary market, making the investment more liquid and thereby attractive to investors. Additionally, there are no restrictions on advertising and general solicitation, nor any accredited /non-accredited investor restrictions, both unique features.
While the SCOR process is simple and cost-effective compared to other public offering options, there is relatively little information available in the marketplace for companies wanting to complete a SCOR. Denver-based DataMerge, Inc. produces a manual/software program that walks companies through the filing process with instructions, tips and sample U-7 forms. The program, Raising Capital With SCOR provides background on the SCOR process and its evolution, step-by-step instructions for filling out Form U-7, sales/marketing techniques, sample documents and exhibits, and timetables. DataMerge CEO Spencer Kluesner says his company gets approximately 75 inquiries a day from people interested in the SCOR program. Small businesses are having a difficult time finding lenders and investors on their own, and our programs help them locate sources and means to get their financing so they can start or build their business. Companies and consultants can get more information on DataMerge's products by calling 800-580-1188.
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