Mississippi Blue Sky Laws for Syndication

Navigating the complexities of securities laws is a critical aspect of raising capital, whether you are a real estate developer, private equity fund manager, or a business professional involved in syndication. One of the essential components of this regulatory landscape is understanding and complying with Blue Sky Laws, state-specific regulations designed to protect investors from fraudulent securities practices. In the context of federal regulations, the SEC’s Regulation D, particularly Rules 506(b) and 506(c), plays a pivotal role by offering exemptions that streamline the capital-raising process while maintaining investor protections.

This article delves into the intricacies of Mississippi’s Blue Sky Laws, exploring their relationship with federal Regulation D offerings. It provides comprehensive guidance on why you might choose Regulation D over state laws, the notification rules for these offerings, and the specific exemptions and procedures under Mississippi securities laws. Additionally, we address the practical considerations of whether you need a Mississippi-based attorney to put together your offering and the limitations of having an out-of-state syndication attorney review your purchase contract.

Whether you are planning a multifamily syndication in Jackson, raising capital for a new business venture, or developing a project in Gulfport, understanding these legal frameworks is crucial. By the end of this article, you will have a clearer picture of how to navigate these regulations effectively, ensuring compliance and optimizing your capital-raising efforts.

How do a State’s Blue Sky Laws Relate to the SEC’s Regulation D?

State Blue Sky Laws are regulations enacted by individual states to protect investors from fraud in securities transactions. These laws require securities offerings and sales to be registered or to qualify for an exemption within the state. However, when it comes to federal securities regulations, there’s an important interaction to understand, particularly with the SEC’s Regulation D.

Preemption of State Blue Sky Laws by Regulation D

Regulation D, specifically Rule 506(b) and Rule 506(c), offers exemptions from federal securities registration requirements, allowing issuers to raise capital without the need to register the offering with the SEC. Under 15 U.S. Code § 77r(b)(4)(F), these offerings also preempt state Blue Sky Laws. This means that if you are conducting an offering under Rule 506(b) or Rule 506(c), you are not required to comply with the state-level registration requirements. Here’s how it works:

1. Rule 506(b): This rule allows issuers to raise an unlimited amount of capital from accredited investors and up to 35 non-accredited but sophisticated investors. However, general solicitation or advertising of the offering is prohibited.
2. Rule 506(c): This rule permits general solicitation and advertising of the offering, provided all investors are accredited, and the issuer takes reasonable steps to verify their accredited status.

By utilizing either of these rules under Regulation D, issuers can bypass the cumbersome process of registering their securities with each state where they plan to offer or sell them. Instead, they need to comply only with federal regulations, simplifying the process and reducing costs.

Intrastate Offerings under State Blue Sky Laws

Despite the federal preemption provided by Regulation D, there are scenarios where a sponsor might choose to utilize state Blue Sky Laws instead, particularly through intrastate offerings. An intrastate offering is when the offering is confined within a single state, involving a sponsor, all investors, and assets located in that state.

Under this approach, the sponsor can take advantage of state-specific exemptions for intrastate offerings, which may offer more favorable terms or simpler compliance processes for certain local projects. Key points include:

• Intrastate Offering Exemption: Issuers can choose to register under the state’s Blue Sky Laws if all aspects of the offering are within the state. This can sometimes offer benefits such as lower costs or tailored regulatory oversight suited to local conditions.
• Compliance with State Laws: Even when opting for an intrastate offering, it’s crucial to comply with all relevant state regulations, including filing requirements, documentation, and disclosure standards as mandated by the state’s securities regulator.

In conclusion, while Regulation D Rule 506(b) and Rule 506(c) offer significant advantages by preempting state Blue Sky Laws, allowing for a streamlined and cost-effective way to raise capital, intrastate offerings under state laws remain a viable option for certain localized projects. Understanding when and how to leverage these different regulatory frameworks can be pivotal for the success of a securities offering.

Why Would I Choose Regulation D Rule 506(b) or Rule 506(c) Over the State’s Blue Sky Laws?

When considering how to structure a securities offering, choosing between Regulation D under the SEC and state Blue Sky Laws is a critical decision. Here’s why Regulation D Rule 506(b) or Rule 506(c) often emerges as the preferred choice:

Preemption of State Blue Sky Laws

One of the most significant advantages of using Regulation D, specifically Rule 506(b) or Rule 506(c), is that these federal rules preempt state Blue Sky Laws. This means issuers do not have to comply with the registration requirements of each state where their securities are offered. This preemption is highly beneficial for several reasons:

• Simplified Compliance: Issuers only need to comply with federal regulations, which reduces the complexity and administrative burden associated with navigating the differing requirements of multiple states.
• Cost Efficiency: Avoiding state registration fees and the associated legal costs can result in substantial savings for issuers.

Geographic Flexibility

Regulation D is particularly advantageous when dealing with investors from multiple states. Under state Blue Sky Laws, an offering must be confined within state borders to qualify for intrastate exemptions. This poses a significant risk:

• Investor Domicile Issues: If an investor is mistakenly believed to be in-state but is actually domiciled outside the state, the offering no longer qualifies as intrastate. This misclassification can lead to serious securities law violations, potentially invalidating the entire offering.
• Out-of-State Investors: Regulation D does not impose geographic restrictions, allowing issuers to attract investors nationwide without worrying about breaching state boundaries.

Benefits of Rule 506(b) and Rule 506(c)

Both Rule 506(b) and Rule 506(c) under Regulation D provide specific benefits that often outweigh the advantages of state Blue Sky Laws:

Rule 506(b):

• Unlimited Capital Raising: There is no cap on the amount of capital that can be raised under Rule 506(b).
• Investor Flexibility: While general solicitation is not allowed, issuers can include up to 35 non-accredited but sophisticated investors alongside accredited investors, broadening the potential investor base.
• Streamlined Compliance: The straightforward compliance requirements under federal law simplify the process compared to managing multiple state registrations.

Rule 506(c):

• General Solicitation and Advertising: Rule 506(c) permits issuers to publicly advertise their offerings, provided all purchasers are accredited investors.
• Enhanced Reach: The ability to solicit broadly can significantly increase the pool of potential investors, thereby enhancing fundraising potential.

Mitigating Legal Risks

Choosing Regulation D helps mitigate the legal risks associated with securities offerings:

• Regulatory Clarity: Federal regulations under Regulation D are well-defined, providing clear and consistent guidelines that reduce the risk of non-compliance.
• Due Diligence: Particularly under Rule 506(c), the requirement to verify the accredited status of investors ensures a higher level of due diligence, protecting both the issuer and the investors.

Avoiding Common Pitfalls

Using state Blue Sky Laws for an intrastate offering can be risky if any party involved is not strictly confined within the state:

• Discovery of Out-of-State Domicile: If it’s discovered that an investor is domiciled outside of the state, the offering can no longer be classified as intrastate. This reclassification could lead to significant legal issues, including potential penalties and the need to refile under federal regulations.
• Simplicity and Security: Regulation D provides a more secure framework by avoiding these pitfalls, ensuring that all aspects of the offering remain compliant regardless of investor locations.

In conclusion, Regulation D Rule 506(b) and Rule 506(c) offer substantial advantages over state Blue Sky Laws, including federal preemption, geographic flexibility, significant capital-raising potential, and clear compliance guidelines. These benefits make Regulation D the preferred choice for sponsors and issuers seeking to efficiently and effectively raise capital while minimizing legal risks.

What Are The Notification Rules and Terms for Notifying the State about a Regulation D Rule 506(b) or Rule 506(c) Offering?

While Regulation D Rule 506(b) and Rule 506(c) offerings are exempt from state Blue Sky Laws registration requirements, issuers must still notify the states where they offer or sell securities. Here’s a breakdown of the notification rules and terms for Mississippi:

Notification Requirements

Form D Filing with the SEC:

• Issuers must file Form D with the Securities and Exchange Commission (SEC) within 15 days of the first sale of securities. Form D includes essential information about the issuer and the offering.

State Notice Filing through NASAA EFD:

• Issuers must file a notice with the state of Mississippi using the NASAA Electronic Filing Depository (EFD). This platform streamlines the filing process for state notice filings.
• Steps for Filing:
  • Access NASAA EFD: Go to the NASAA EFD website at https://www.efdnasaa.org/FAQ/answer?faq=2.
  • Submit Form D: Upload the Form D filed with the SEC.
  • Consent to Service of Process: Include a consent to service of process, allowing the state securities regulator to receive legal documents on behalf of the issuer.

Filing Fees and Deadlines

Filing Fee:

• The fixed fee for filing a notice of a Regulation D offering in Mississippi is $300. This fee must be paid through the NASAA EFD at the time of filing to process the notice.

Late Filing Fee:

• Timely filing is crucial. If the notice is filed more than 15 days after the first sale of securities, a late fee is imposed.
• The late fee is calculated as 1% of the amount of securities sold within the state of Mississippi, with a maximum late fee of $5,000.

Practical Steps for Compliance

To ensure compliance with Mississippi’s notification rules for a Regulation D offering, follow these steps:

Prepare Form D:

• Complete Form D with accurate and comprehensive information about the offering. This form must be filed with the SEC within 15 days of the first sale.

Submit State Notice Filing via NASAA EFD:

• Access the NASAA Electronic Filing Depository (EFD) and submit a copy of Form D to the Mississippi Secretary of State.
• Include any required state-specific forms, the $300 filing fee, and the consent to service of process through the EFD platform.

Monitor Filing Deadlines:

• Ensure that the state notice filing is submitted within the 15-day window to avoid late fees.
• If a filing is delayed, calculate the late fee as 1% of the total amount of securities sold in Mississippi, up to a maximum of $5,000, and include this payment with your late filing through the NASAA EFD.

By adhering to these notification rules and timely filing requirements through the NASAA EFD, issuers can maintain compliance with Mississippi’s securities regulations while leveraging the benefits of Regulation D Rule 506(b) and Rule 506(c) offerings. This ensures a smooth capital-raising process and minimizes the risk of legal complications.

What are Mississippi’s Blue Sky Laws?

Mississippi’s Blue Sky Laws are designed to protect investors from securities fraud. Key provisions include:

• Section 57-77-11: Establishes the Magnolia Venture Capital Corporation to provide venture capital to high-growth Mississippi businesses, detailing its structure and governance.
• Section 75-71-201: Lists securities exempt from registration, including those issued by government entities and certain non-profits.
• Section 75-71-203: Allows additional exemptions and waivers from registration requirements, enhancing regulatory flexibility.
• Section 75-71-204: Details the authority to deny, suspend, or revoke exemptions to protect investors, with provisions for those who unknowingly violate these conditions.

These rules ensure a robust framework for investor protection and market integrity in Mississippi.

MS ST § 57-77-11 Magnolia Venture Capital Corporation

Section 57-77-11 of the 2017 Mississippi Code outlines the formation, structure, and duties of the Magnolia Venture Capital Corporation. This for-profit corporation is established to provide venture capital to Mississippi businesses, particularly those with high growth potential. The section details the appointment and terms of the board of directors, the creation of bylaws and articles of incorporation, and the corporation’s authority to issue shares. It mandates a minimum capital investment of $4.5 million from private investors and specifies the corporation’s role as the general partner of a limited partnership fund aimed at financing startups and high-growth businesses in the state.

MS ST § 75-71-201 Exempt securities

Section 75-71-201 of the 2013 Mississippi Code enumerates various types of securities that are exempt from registration requirements under the Mississippi Securities Act of 2009. These include securities issued by the U.S. government, states, and their political subdivisions, certain foreign governments, international and national banking institutions, insurance companies, public utilities, and non-profit organizations. Additionally, specific types of oil, gas, and mineral interests are exempt. This exemption aims to streamline processes for these entities while maintaining regulatory oversight.

MS ST § 75-71-203 Additional exemptions and waivers

Section 75-71-203 of the 2019 Mississippi Code provides for additional exemptions and waivers related to securities. It authorizes the adoption of rules or issuance of orders to exempt specific securities, transactions, or offers from the registration requirements outlined in Sections 75-71-301 through 75-71-306 and 75-71-504. Furthermore, it allows the waiver of conditions for exemptions under Sections 75-71-201 and 75-71-202, either wholly or partially, enhancing regulatory flexibility.

MS ST § 75-71-204 Denial, suspension, revocation, condition, or limitation of exemptions

Section 75-71-204 of the 2013 Mississippi Code details the authority to deny, suspend, revoke, condition, or limit exemptions for securities. This applies to exemptions created under Sections 75-71-201 and 75-71-202, and orders may be issued following procedures in Sections 75-71-306 and 75-71-604. The section also protects individuals who unknowingly violate these conditions, provided they exercise reasonable care and are unaware of such orders.

What are Mississippi’s Securities Laws Exemptions?

Mississippi provides several exemptions from the registration requirements under its Blue Sky Laws, allowing certain types of securities and transactions to be offered and sold without undergoing the full registration process. These exemptions are designed to facilitate capital formation while ensuring adequate investor protection. Here are the key categories of exemptions as outlined in the Mississippi Code Section 75-71-201:

Exempt Entities and Securities

Governmental Entities:

• Securities issued by the U.S. government, any state, or any local government within the U.S. are exempt. This includes securities from certain foreign governments, such as Canada, recognized under the law.

Financial Institutions:

• Securities issued by banks, savings institutions, trust companies, savings and loan associations, building and loan associations, small loan corporations, credit unions, and industrial loan associations are exempt. These institutions are generally subject to stringent regulatory oversight, reducing the need for state-level securities registration.

Cooperative Corporations:

• Securities issued by cooperative corporations are exempt. These entities often operate on a mutual benefit basis for their members, such as agricultural or utility cooperatives.

Other Entities:

• Securities issued by railroads, common carriers, public utilities, holding companies, and insurance companies are exempt. These industries are heavily regulated, providing inherent investor protections.

Listed Stock Exchange Securities:

• Securities listed on recognized stock exchanges are exempt. These securities are subject to extensive disclosure and regulatory requirements imposed by the exchanges and the SEC.

Non-Profit Organizations:

• Securities issued by non-profit organizations are exempt. These entities are often engaged in charitable, religious, educational, or other non-commercial activities.

Current Transaction Commercial Paper:

• Short-term commercial paper that arises out of a current transaction or the proceeds of which are used for current transactions is exempt. This typically includes instruments like promissory notes or bills of exchange with maturities of no more than nine months.

Employee Benefit Plans:

• Securities issued as part of an employee benefit plan are exempt. These include stock options, pension plans, and other employee compensation arrangements that involve securities.

Exemptions Through Rules and Orders

Mississippi law also allows for additional exemptions through rules adopted or orders issued by the state’s securities administrator:

• Class Exemptions:
• The securities administrator can adopt rules that exempt classes of securities, transactions, or offers from the registration requirements. This flexibility allows for broad exemptions tailored to specific types of securities or transactions deemed to pose lower risks to investors.
• Transaction-Specific Exemptions:
• An order can be issued to exempt specific securities, transactions, or offers from any or all of the requirements of Sections 75-71-301 through 75-71-306 and Section 75-71-504. This discretionary power enables the securities administrator to address unique circumstances where the standard requirements may be unnecessary or overly burdensome.
• Waivers:
• The securities administrator may waive, in whole or in part, any conditions for an exemption under Sections 75-71-201 and 75-71-202. This allows for further flexibility in accommodating the needs of issuers while maintaining investor protection.

In summary, Mississippi’s securities laws provide a range of exemptions designed to facilitate various types of securities offerings and transactions. These exemptions help reduce regulatory burdens for certain issuers while ensuring that investor protections remain in place. Understanding these exemptions and the conditions under which they apply is crucial for issuers seeking to raise capital in Mississippi.

What are Mississippi’s Procedures for Securities Law Exemptions?

Navigating the procedures for securities law exemptions in Mississippi requires a thorough understanding of the steps and requirements set forth by the state’s securities regulations. These procedures are designed to ensure that issuers comply with the law while benefiting from the available exemptions. Here’s a comprehensive guide to the procedures for obtaining securities law exemptions in Mississippi:

1. Determine Eligibility for Exemption

Before proceeding, issuers must determine whether their securities offering qualifies for one of the exemptions under Mississippi law. The primary exemptions include those for governmental entities, financial institutions, cooperative corporations, specific industries, listed securities, non-profits, commercial paper, and employee benefit plans.

2. Prepare the Necessary Documentation

Once eligibility is established, the issuer must prepare the required documentation to support the exemption claim. This typically includes:

• Detailed Offering Information: Description of the securities being offered, including terms, conditions, and the intended use of proceeds.
• Disclosure Documents: Depending on the exemption, documents such as a Private Placement Memorandum (PPM) may be necessary to provide detailed information to potential investors.
• Financial Statements: Recent financial statements of the issuer, which may need to be audited, depending on the nature of the exemption and the offering.

3. File the Required Forms

Issuers must file the appropriate forms with the Mississippi Secretary of State or through the NASAA Electronic Filing Depository (EFD), depending on the specific exemption being claimed. The general steps are as follows:

• Access NASAA EFD: For many filings, use the NASAA Electronic Filing Depository (EFD) at https://www.efdnasaa.org/FAQ/answer?faq=2.
• Submit Documentation: Upload the necessary documents, including Form D (if applicable), and any other required state-specific forms.
• Consent to Service of Process: Include a consent to service of process, which authorizes the state securities regulator to accept legal documents on behalf of the issuer.

4. Pay Filing Fees

Mississippi requires a filing fee to process exemption claims. The general fee structure includes:

• Standard Filing Fee: $300 for submitting the notice of a Regulation D offering or other exemptions.
• Late Filing Fee: If the filing is submitted more than 15 days after the first sale of securities, a late fee of 1% of the amount of securities sold within Mississippi, up to a maximum of $5,000, will be imposed.

5. Review and Approval

After submission, the Mississippi Secretary of State’s office will review the filing to ensure compliance with state securities laws. This review process may involve:

• Verification of Eligibility: Confirming that the offering meets the criteria for the claimed exemption.
• Assessment of Documentation: Ensuring all required documents are complete and accurate.
• Additional Information Requests: The state may request further information or clarification during the review process.

6. Compliance and Record-Keeping

Maintaining compliance with Mississippi’s securities regulations involves ongoing record-keeping and adherence to any conditions attached to the exemption. Issuers should:

• Maintain Records: Keep detailed records of all communications, filings, and investor interactions.
• Update Information: Notify the state of any significant changes to the offering or the issuer’s status.
• Annual Reporting: Depending on the nature of the exemption, there may be ongoing reporting requirements to the state.

7. Seeking Legal Assistance

Given the complexities of securities law, issuers are advised to seek assistance from a qualified securities or syndication attorney. A legal professional can:

• Ensure Compliance: Help navigate the exemption process and ensure all legal requirements are met.
• Prepare Documentation: Assist in preparing comprehensive and compliant offering documents.
• Respond to Regulatory Inquiries: Provide support in responding to any state securities regulator inquiries or requests for additional information.

In conclusion, Mississippi’s procedures for securities law exemptions involve a series of well-defined steps, including determining eligibility, preparing documentation, filing required forms, paying fees, and ensuring ongoing compliance. By following these procedures and seeking appropriate legal assistance, issuers can effectively navigate the exemption process and focus on their capital-raising efforts.

Frequently Asked Questions

Do I Need an Attorney from Mississippi Then to Put Together an Offering?

The necessity of hiring an attorney licensed in Mississippi largely depends on the specifics of your securities offering. If your offering is structured under Regulation D and does not rely on Mississippi-specific Blue Sky Laws, then you likely do not need a Mississippi-based attorney. For instance, if you are engaging a real estate syndication attorney to draft a private placement memorandum (PPM) for a multifamily deal in Jackson, Mississippi, and the offering spans multiple states, a licensed syndication lawyer from any state could assist you. This attorney could prepare the PPM, establish the entity, and draft the operating agreement. However, they would not be able to provide legal counsel on the particularities of Mississippi state laws and how they might impact your offering.

Conversely, if you are organizing a private placement memorandum for a development project in Gulfport, Mississippi, and all the investors are from Mississippi, intending to use one of Mississippi’s Blue Sky Laws as an exemption to registration, it becomes crucial to work with an attorney licensed in Mississippi. In this scenario, the specific nuances and compliance requirements of Mississippi securities laws must be navigated, and a local attorney’s expertise would be essential to ensure full legal compliance and to mitigate potential legal risks.

In summary, the need for a Mississippi-based attorney is determined by whether your offering falls under federal Regulation D exemptions or if it requires the application of Mississippi’s Blue Sky Laws. For multi-state offerings under Regulation D, a syndication attorney from any state with appropriate experience can provide the necessary legal services. However, for intrastate offerings relying on state-specific exemptions, engaging a Mississippi-licensed attorney is advisable to ensure adherence to local legal requirements.

Is it OK if the Real Estate Syndication Attorney, Licensed Outside of Mississippi, Looks Over My Purchase Contract?

Yes, a real estate syndication attorney licensed outside of Mississippi can review your purchase contract, but there are limitations on the advice they can provide. For example, Tilden Moschetti, Esq., a syndication attorney with the Moschetti Syndication Law Group, can review the purchase contract for your property in Southaven, Mississippi. However, it is important to note that while he can offer business consulting advice—such as discussions on price, deal structure, and general timelines—he cannot provide legal advice specific to Mississippi laws due to his lack of licensure in the state.

This means that while an out-of-state syndication attorney can offer valuable input on broad deal points and help you understand the general terms and conditions, they cannot address specific legal terms or nuances that pertain to Mississippi’s legal requirements. For legal advice specific to the contract terms under Mississippi law, you would need to consult with an attorney licensed in Mississippi. This ensures that all aspects of the contract comply with state-specific legal standards and regulations, safeguarding your interests and ensuring legal compliance.