One of the often neglected, although required, steps when establishing a corporation or limited liability company is the filing of a Limited Offering Exemption Notice (LOEN) under California Corporations Code Section 25102(f). This section provides an exemption from Section 25110, which states that it is unlawful to offer or sell any security unless the sale has been qualified under the Corporations Code.
When incorporating or organizing, companies are allowed to offer or sell securities under Section 25102(f), as long as the sale is not made to more than 35 persons, the purchasers have a preexisting relationship with the company or its officers or directors or could reasonably be presumed to be able to protect their own interests, each purchaser is buying for his or her own account, and there is no advertising of the sale. Most startups meet these designations.
The LOEN must be filed online at www.corp.ca.gov/LOEN/default.asp unless a hardship exception applies. The filing fee is between $25 and $300, depending on the value of the securities being sold, and the notice must be filed within 15 calendar days after the first sale of a security.
Be sure that this relatively simple and inexpensive filing is done when setting up your corporation or LLC in order to avoid any problems in the future.