Pennsylvania Venture Capital Lawyer

Omni Law P.C. advises Pennsylvania companies and their founders on venture financings, from pre seed instruments through priced preferred rounds, and on the securities compliance that surrounds them. Every offer or sale of a security in Pennsylvania has to fit somewhere: registration, an exemption, or federally covered status. That rule comes from Section 201 of the Pennsylvania Securities Act of 1972, and it applies to a friends and family round as much as to an institutional Series A.

The firm works on round structure, charter and equity mechanics, investor documents, disclosure discipline, and the corporate cleanup that diligence tends to expose. Engagements are handled at the firm level from the Philadelphia office for companies across the Commonwealth.

To discuss a Pennsylvania financing, call (267) 388-9451 or use the Omni Law P.C. contact page.

Financing Pennsylvania Companies

A financing is three workstreams running at once: the securities analysis that determines how the offering may be conducted, the corporate documents that create and price the new equity, and the contractual package that governs the investor relationship afterward. Problems usually arrive from the third workstream being negotiated before the first has been settled.

Early questions the firm works through with a company include the following:

• Which exemption will the round rely on, and do the facts fit its conditions, including any limits on general solicitation?

• Who are the investors, and how many of them are accredited?

• What equity has already been issued, and is the record consistent with the cap table?

• What notice filings will be due after the first sale, at the federal level and in each state where investors reside?

Pennsylvania and Federal Securities Law Basics

The Pennsylvania Registration Requirement

Section 201 of the Act provides that it is unlawful for any person to offer or sell any security in Pennsylvania unless the security is registered under the Act, the security or transaction is exempted under Section 202 or 203, or the security is a federally covered security (Pennsylvania Securities Act of 1972). Note that the prohibition reaches offers, not only completed sales, which is why outreach practices are reviewed before a round is marketed.

Exempt Transactions Under Section 203

Section 203 identifies exempt transactions, including offers and sales to institutional investors and broker dealers. It also exempts issuer sales to not more than 25 persons in Pennsylvania during 12 consecutive months, subject to conditions that include a 12 month resale restriction agreement, the absence of general solicitation or advertising, including through the internet, and limits on promoter compensation (Pennsylvania Securities Act of 1972). Counting purchasers and documenting the absence of solicitation are practical compliance tasks, not formalities.

Rule 506(b) Private Placements

Under the federal private placement rule, an issuer may raise an unlimited amount from an unlimited number of accredited investors and no more than 35 non accredited investors, may not use general solicitation or advertising, must file a Form D notice within 15 days after the first sale, and issues restricted securities. State registration is preempted, although states may require notice filings and fees, and bad actor disqualification applies (SEC, Private Placements Under Rule 506(b)).

Broker Dealer and Finder Questions

Section 301 of the Act requires registration to transact business in Pennsylvania as a broker dealer, agent, or investment adviser, subject to the exemptions in Section 302 (Pennsylvania Securities Act of 1972). Companies considering paying a percentage of capital raised to an unregistered introducer should get that arrangement reviewed first.

Round Structure and Documents

Authorized Shares and Preferences

Preferred stock has to exist in the charter before it can be issued. Articles of incorporation must state the aggregate number of authorized shares, and where more than one class or series is authorized, the voting rights, designations, preferences, limitations, and special rights of each class or series, or the extent to which the board is authorized to fix those terms, under 15 Pa.C.S. § 1306. Charter amendments are therefore often the first corporate step in a priced round.

Shareholder, Voting, and Investor Rights Agreements

Agreements among shareholders, or between the corporation and shareholders, regarding the voting of their shares are valid and enforceable in accordance with their terms, and voting trusts are also authorized, under 15 Pa.C.S. § 1768. Board designation rights, drag along provisions, information rights, and transfer restrictions are typically allocated across the shareholder agreement, the investor rights agreement, and the charter.

Board Composition and Protective Provisions

Directors stand in a fiduciary relation to the corporation and must perform their duties in good faith, in a manner reasonably believed to serve the interests of the corporation, and with the care of a person of ordinary prudence, with justifiable reliance permitted on officers, counsel, public accountants, and board committees, under 15 Pa.C.S. § 1712. Investor designated directors are subject to those duties, which is a point worth addressing when protective provisions are negotiated.

Limited Liability Company Financings

Where the company is a limited liability company rather than a corporation, the operating agreement is the governing instrument, and its scope covers relations among members, manager rights and duties, company activities, amendment, and approval of entity transactions under 15 Pa.C.S. § 8815. Investor preferences in that setting are built into the agreement rather than a charter.

To discuss round documents for a Pennsylvania company, call (267) 388-9451.

Antifraud Exposure and Disclosure Discipline

Section 401 of the Act makes it unlawful, in connection with the offer, sale, or purchase of any security in Pennsylvania, to employ any device, scheme, or artifice to defraud, to make an untrue statement of a material fact or omit a material fact necessary to make statements not misleading, or to engage in any act or practice that operates as a fraud or deceit (Pennsylvania Securities Act of 1972).

Section 501 creates civil liability to purchasers for sales made in violation of the Act’s identified provisions or by material misstatement or omission, including recovery of the consideration paid plus interest at the legal rate, less income received, or damages, with a reasonable care burden placed on the seller (Pennsylvania Securities Act of 1972).

The practical implication for founders is that pitch materials, projections, and side conversations are part of the disclosure record. The firm reviews decks and investor correspondence alongside the formal documents, and keeps risk factors and disclosure schedules consistent with what investors have been told.

Exit, Appraisal Rights, and Downstream Effects

Financing terms shape what a later exit looks like. Under Pennsylvania law, dissenters rights, also called appraisal rights, are available only where Title 15 expressly provides, with cross references that include merger, interest exchange, conversion, division, and certain asset transfers, and an exception applies to classes listed on a national securities exchange or held beneficially or of record by more than 2,000 persons, under 15 Pa.C.S. § 1571. Liquidation preferences, drag along thresholds, and consent rights should be drafted with those statutory triggers in view.

Transaction planning is covered further on the firm’s Philadelphia mergers and acquisitions page.

Founder and Employee Equity

Founder vesting, repurchase rights on departure, option pool sizing, and clean intellectual property assignment are diligence items in nearly every round. Where equity was issued informally in a company’s first year, the record often has to be reconstructed before new securities are sold. Tax elections and their deadlines are handled with the company’s tax advisers.

Related pages: Philadelphia venture capital, Philadelphia startup formation, and Philadelphia shareholder agreements.

Talk to Omni Law P.C. About Your Pennsylvania Financing

State startup guidance goes only so far: the Commonwealth’s business portal notes that its information does not replace legal or tax advice and directs readers to a lawyer (PA Business One-Stop Shop). Securities analysis is easier to handle before an offering is circulated than after a closing.

Omni Law P.C.

1650 Market St Ste 3600, Philadelphia, PA 19103

Phone: (267) 388-9451

To request a consultation, call (267) 388-9451 or use the firm contact page. You can also review the firm’s Pennsylvania overview, office locations, and fee structure.