State Small Corporation Offering Registration (SCOR)

Federal securities law requires that securities issued by companies to their investors must be registered with the Securities and Exchange Commission unless the offering qualifies for an exemption from registration. Registration is a complicated and expensive process, generally prohibitive for smaller companies.

One exemption from registration is available if the company offers securities only to accredited investors in a private offering.   An accredited investor must meet certain criteria, the most important of which is that he or she, including the spouse if one, has a net worth of more than $1 million, excluding the value of the person’s primary residence.  A private transaction means that there can be no advertising or publicity about the offering, including no mention of the offering on the company’s web pages.

This type of offering is problematic for many entrepreneurs.  If they don’t have deep networks of accredited investors, it may be virtually impossible for them to raise capital, given that they can’t talk publically about their offering.

There is an alternative.  An entrepreneur can chose to register its company’s offering with its state securities regulator.  This offering is known as a Small Corporation Offering Registration or SCOR.  A SCOR offering allows a company to raise up to $1 million from an unlimited number of investors resident in the state using public advertising. The investors do not have to be accredited.

A SCOR offering is not simple, but it is doable. Boise entrepreneur Doug Joseph is currently conducting a SCOR offering for his company Locate Express as a means of raising capital to expand his business.  Doug reports that he was able to do most of the work of registering his offering himself.

In Idaho our regulator is the Securities Bureau of the Idaho Department of Finance.  The Bureau has published a SCOR manual and other useful documents on its web site. Click on “SCOR/U-7 Filings” under “Forms Available Online” in the upper right of their home page.

I’ve summarized the basics of a SCOR offering below.  But there are technical details that are important and anyone contemplating such an offering must engage legal counsel to advise the company and to give an opinion regarding the securities.

According to the SCOR manual the company must be a corporation or limited liability company.  This offering cannot be used for companies engaged in petroleum exploration and production, mining or other extractive industries.  And the company must not be a development-stage company with no specific business plan or purpose other than a merger.

The stock price must be $1 per share or more.  Financial statements must be provided.  If the company is raising less than $500,000 the statements must be reviewed by a CPA; for offerings between $500,000 and $1 million, the statements are generally required to be audited.

To register your offering with the State, you file a disclosure document known as a U-7 and other documents along with a filing fee of $300.  The purpose of the filing is to disclose all material information about the Company that a typical investor would want to know before making an investment in the company. 

The Idaho Securities Bureau is willing to talk on the phone or meet with an entrepreneur considering making a SCOR offering to review the requirements before the entrepreneur submits the documents.  You can reach the Bureau at 888-346-3378. 

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Dr. Kevin Learned is a counselor at the Idaho Small Business Development Center at Boise State University where he specializes in counseling with entrepreneurs seeking equity capital. He is a member of the Boise Angel Fund, and is a principal in Loon Creek Capital which assists angels in forming angel funds. He can be reached by email to kevinlearned@boisestate.edu.