Permission to come aboard

Investment rounds and fundraising are key components of growing many businesses, and will determine the success and growth prospects of many SMEs and high-growth companies.

But raising investment is fraught with potential pitfalls

In the UK, financial promotion restrictions mean that, generally speaking, a person must not communicate an opportunity for investment (such as offering shares) unless the promotion has been authorised or is exempt. For a company to raise funds it will often look to take advantage of one of the various exemptions available because appointing an FCA-authorised person to approve the promotion increases the cost. Not complying with the financial promotion restriction may have serious consequences on, for example, the ability for investors to demand their investment back – as well as the fact that it is an offence under UK law.

High net worth and/or sophisticated investors exemption

Often a company will rely on the high net worth investor (“HNWI”) or sophisticated investor (“SI”) exemptions, which allow for promotions meeting certain requirements to be made to this audience. Complying with the exemptions is not straightforward, so companies should take steps as early as possible, and before any promotional material is sent to potential investors, to ensure they comply with the rules. Failure to comply with any of the rules may, among other penalties, leave the company exposed to a disgruntled investor looking to have their investment returned.

US vs. UK

To further complicate matters, more UK and European companies are now looking to raise investment from America: from high net worth individuals, VC and/or institutional investors. While the US represents an attractive pool of investment monies, it also comes with its own corresponding set of financial promotion rules.

Too often companies will raise funds in the UK, comply with the UK financial promotion restriction, only to fail to consider (at least until the last minute) that there are corresponding but different provisions in the US.  There are significant penalties for failing to comply with US securities law, including potential criminal charges. There is no point in battening down only a few hatches on a submarine.

The US has both state and federal laws as to how an offer or sale of securities may be made to US persons, with state law registration or notification requirements varying considerably from state to state. Some states may require filings to be made in advance of the issue of securities and may impose a fee; others may only require a copy of the relevant SEC filings to be made in the state.

Rooney Nimmo has broad experience assisting with financial promotions in both the UK and US, together with the filing requirements that may be required in each jurisdiction. We are also experienced in helping companies craft deal terms that can accommodate the expectations and requirements of UK and US investors in the same fundraising (which can differ substantially). Please contact us if you have any questions.


Note: This article is one of a series intended to de-mystify common legal issues for the non-lawyer and entrepreneur audience – they are designed to foster discussion and is by no means exhaustive. These materials are for informational purposes only. Nothing herein is intended nor should be regarded as legal advice. The distribution of this article to any person does not establish an attorney-client relationship with our firm. Rooney Nimmo assumes no liability in connection with the use of this publication. This bulletin is considered attorney advertising under the applicable rules of New York State. Rooney Nimmo UK is regulated by the Law Society of Scotland and Rooney Nimmo US by the New York Rules of Professional Conduct. All Attorneys and Solicitors listed in this firm stipulate their jurisdictional limitations. Rooney Nimmo in the USA is a law firm registered as a New York State Professional Corporation.

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