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Key Idea: Learn How Your State SEC Operates

Deborah Bortner, Securities Commissioner , State of Washington, explains how the Small Corporate Offering Registration works.   More...

Key Question:


Learn how money works and how it works particularly in your state.

Each State has securities laws designed to protect the residents from unscrupulous individuals who would seek a fraudulent conveyance of property, usually cash. If you file a U-7, you will receive comments from State examiners where the Score form is filed. Comments may be requests for additional information or they may contain directives requiring that the offering be modified to conform to that State's securities laws.

Q:  Do you have to submit your prospectus, i.e., the completed Form U-7, to each State where you want to raise capital?

  Fortunately, usually not. Assuming the States where you want to seek investors are in the same geographical area, you can request a "regional review". One State takes the lead in gathering the comments from all the States and providing you with only one comment letter requiring response. This can save you an enormous amount of time. Still, it's a good idea to carefully review the requirements of all the States that will be submitting comments to ensure that the original prospectus complies with each State's unique requirements.

This limits the number of comments you receive and the time necessary to respond to those comments. You think about it: Remember, when the approved SCOR Form or U-7 is bound, it becomes your prospectus, your equity financing sales document. You are most likely to be successful in raising capital in States where you business is located and/or operates. What are those locations for you? If they include multiple but contiguous States, a regional review will meet your needs well.

Think about it

How have your raised the money you needed to start and the money you needed to grow your business?

Clip from: Small Corporate Offering Registration (SCOR)

Austin, Texas:  The Securities Exchange Commission (SEC) instrument known as Small Corporate Offering Registration (SCOR), sometimes referred to as Reg D Rule 504, is a little-known, but important tool for small businesses.

Mandated by Congress, every year since 1982 the SEC has held an annual meeting for small business investors and owners called "Small Business Capital Formation Conference."   The first result of that conference was the Reg D Rule 504.

In 1992, ten years later, Deborah Bortner, the Securities Administrator for the State of Washington, led the way to simplify the registration by developing the SCOR document.

At that time Congress wanted to help small business owner who have a difficult time finding money.  Another aspect of the SCOR is use it as a liquidity model that forces a business valuation. It could also be used as an exit strategy.  The majority of small business owners do not have a succession plan and a SCOR would necessitate that such a plan be implemented.

Historically, out of every $100 in banks loan, small business gets about $7. Though contributing over 50% of the Gross National Product,  working capital is often difficult to obtain.

The SCOR has not caught on. There is very little publicity about it and just a few educational resources. It does require three years of audited financials. It does involve your CPA and a good securities lawyer. 

The SCOR could be used in the following ways:  (1)  A cornerstone of a succession plan and liquidity model for mature small businesses, (2) An alternative to an employee-stock ownership program, (3) A means for all those who already want to buy into a business to do so without going through an IPO and without necessarily being a qualified investor, and (3) An instrument to provide a conservative diversification strategy for pension funds, mutual funds, and private investors.

Because of the ubiquity of the web, Small Business School will promote any and all attempts to develop  mechanisms so the best small businesses are indexed against one another and the best among the best rise to the top and are immediately qualified to be selected by any investor to receive equity capital.

It will change business in America forever.  Small business can share equity,  learn about liquidity models,  understand our financials and key critical ratios, and then participate in the market just like any big business.

Go to all the key ideas and videos of this episode...

Department of Financial Institutions

Deborah Bortner, Director of Securities, Washington State

PO Box 41200
Olympia WA 98504-1200 , WA 98504

Visit our web site:

Office: 360-902-8707

Business Classification:
Financial - Securities

Year Founded:

Learn How Your State SEC Operates

DEBORAH: It absolutely takes some time. It's not just fill it in, use it and you'll get your money. In fact, a number of people thought it was a grant project, it's not. The entrepreneur has to fill out the form. But they should know how because the questions are very intuitive. You know, what's your business? Who are your competitors? Who is involved in the business? What are you going to use the money for?

That's a process that you go through to get a securities registration.

Once that's done, the entrepreneur decides, where am I going to sell this? If they are going to sell it in one state, they register it in one state.

If they're going to sell it in multiple states, normally that happens in regions. And we have a program called Regional Review. For instance, in the West we have 10 participating states in regional review. The entrepreneur will get one comment letter. They file with all the states because that's a legal requirement, but one state is assigned to review that offering. And, they get one comment letter, deal with one regulator and eventually, hopefully be able to sell in the number of states that they filed in.

It's a very good process.

HATTIE: What is it going to cost me to do the SCOR successfully?

DAVID: I can't answer that directly, because it depends on your company. If your company already does a lot of advertising, already is doing promotion with respect to your product, is already is already well-known in the public, you're going to spend a lot less, because you've already made that investment in your corporate image and in people's familiarity with your product or service. If you have to go generate that, then you're going to have to do a substantial amount of advertising and promotion on your own. Depending on the amount that you're trying to raise, that could easily run $30,000 to $40,000.

HATTIE: So you're saying most of the money is spent to promote the sale of the stock, not in paying big fees to professionals like you?

DAVID: That's true. That's true. At least in my case, except for a very small due diligence fee that's paid up front, everything that I make, I make out of the --proceeds of the offering. Just like any sales person, I am paid a commission on the sales of the stock.

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