A company that wants to sell securities to California residents must complete a qualification – an extensive process similar to federal registration.

There are some exemptions to this requirement.  One of the most commonly used is the 25102(f) exemption (named, creatively enough, after the section of the code where it is found).

The following are the requirements for the offer and sale of a security to be eligible for the 25102(f) exemption:

• The offering can be made to an unlimited number of Excluded Purchasers
  • Excluded Purchasers include banks, officers and directors of the company, a person that works for the company that has executive level duties and authority, and accredited investors

• The offering can be made to a maximum of 35 purchasers who do not meet the definition of an Excluded Purchaser, if they meet one of the following requirements
  • Have a preexisting personal or business relationship with the company and/or its principals; or
  • Have the ability to protect their interests due to their financial experience or the fact that they have experienced professional advisors

• All purchasers must state that they are purchasing for their own account and not for re-sale
• The offering of the security may not be advertised to the public

The term “preexisting personal or business relationship” includes any relationship consisting of personal or business contacts of a nature and duration such as would enable a reasonably prudent purchaser to be aware of the character, business acumen and general business and financial circumstances of the person with whom such relationship exists.

In addition, the company must make a simple filing with the Department of Corporations.

This is a very basic summary — please do further research or work with a lawyer before attempting to use this exemption!

Note also that the company still must qualify for a federal exemption from securities registration – see our earlier blog post on federal exemptions.

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