Using SCOR (U-7) Registrations

Entrepreneurs who in the past had frustrating experiences with banks ("show me two years of operations and then we'll consider you for a loan") or private investors ("for a mere 80% of the company we'll be happy to finance part of your idea") now have a opportunity to take their message directly to the marketplace and see if they can convince others their ideas are worth financing. 

In the past, three primary methods of raising capital existed:  loans, private offerings, or full SEC registration of a public offering.  In recent years a new type of public offering has been made available to firms in Maryland and elsewhere.  Known as SCOR "Small Company Offering Registration", or a U-7 Registration, it is has a number of advantages over tradition methods of raising capital. 

So long as a company follows the procedures outlined in the U-7 Registration, and receives State approval, they may raise up to $1,000,000 from the general public and other investors without the previous restrictions of either the "35 Investor Rule" or the time and expense of a full SEC registration. 

There are safeguards build in by the very nature of the Disclosure Document, but so long as the Document is properly filled out and approved by the State, a company may directly approach investors.  Advertising is permitted, so long as the investor receives a copy of the Disclosure Document before making any evaluation of the merits of the investment.  The entire process to get a Registration approved can be as little as two months, but could take six months or more, depending upon how complete are the firm's Business Plan and financial statements.

Who is eligible?

            Any company may use the SCOR (U-7) Registration Disclosure Document, so long as the company is not involved in petroleum, mining, or blind pool investments.

            Investors may be solicited from the general public by advertising or other means pre-approved by the State Regulators.

What are the requirements?

            Up to a $1,000,000 may be raised, and share price must be over $5.00 per share.

            In Maryland, the filing fee is $500 or one-tenth of one percent of the value of the offering - up to a maximum of $1,000.  Fees vary in other States, but are normally not more than $1000.

            A registered agent must be used who is certified in the State to handle secur­ities transactions (most accountants and attorneys can be qualified).  This agent may be the chief financial officer of the company.

There are no restrictions on the type of investor as to financial capability. The minimum investment is normally $1,000.

The U-7 Disclosure Document must be approved by the State regulators before any shares may be solicited. 

The following exhibits will be required to be submitted with the U-7 Disclosure:

 1. Form of Selling Agency Agreement (if using a sales agent)

 2. Charter documents (Articles of Incorporation, etc)

 3. By-Laws, to date

 4. Resolutions dealing with issuing capital stock

 5. Terms of any notes, debt, warrants, or options

 6. Sample of securities being offered

 7. Consent forms and resolutions (Form U-2 & U-2A)

 8. Sample of any and all advertising directed to investors

 9. Escrow Agreement for proceeds

10. Accountant's Report and consent to use it

11. Tax Advisor's opinion and consent to use it

12. Legal opinion and consent to use it

13. Subscription Agreement for purchase of securities

14. Legal opinion that the securities are duly authorized and legal

15. Names, addresses of Officers, Directors, and principal stockholders

16. Work sheets showing calculations of price/earnings multiples, book value per share, percent of ownership by investors, stock value, and earnings to debt fixed charges.

17. Audited Financial Statements or Performa projections reviewed by a Certified Public Accountant.

NOTE:  These are only a brief summary of the detailed requirements contained in the full Form U-7 (Small Corporate Offering Registration Form).  Do not attempt to rely on the above to determine whether your situation is appropriate to using SCOR.  That can be determined only by a thorough review of the full Form U-7 and appropriate professional advice.

Ralph Helwig is President of Economic Strategies, Ltd., a consulting firm established in 1983 which specializes in assisting entrepreneurs in starting and financing businesses (

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