There is no difference in structure from a private business to a public business except one thing. One is private and not controlled by the Security & Exchange Commission and the other is public and is controlled by them. Therefore, you can select a funding structure that a public company may or may not be approved by the Security & Exchange Commission to use. That does not mean all is lost. The company to which you are funding just has to submit the required security registration documents to the SEC and obtain approval BEFORE you invest. Now you can investment via a loan to be convertible automatically into the security of your choice when the SEC approves its issuance if the funding is critical as to the timing.

 

Debt or preferred stock may be approved for the company to use but may not contain the required rights and privileges you seek. In this case, the company will have to file with the SEC to obtain approval for that same class of stock with your rights and privileges. When this occurs the company will issue the securities to you but under a different SERIES within the class of security you have selected for your funding structure.

 

There is one caution to all of this. You will need to make sure in your Due Diligence review provided in a later educational piece to make sure that the class of security you have selected for your funding structure is identified on the Corporation documents filed with the Secretary of State in the company domiciled state. If the security is not identified then a change in the corporation documents will be required before the company can submit to the SEC for any approval.

 

Again it should now go without saying that the funding structure you select should be based upon your investment criteria, the company you are funding, the amount of funding and the risk involved with the funding level.