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Chapter 3. Financing a Game Development Venture > Selling the Company - Pg. 70

Financing a Game Development Venture Regulation of Investments 70 After the stock market crash of 1929 and the ensuing Great Depression, Congress and the states enacted laws regulating the sale of securities. Securities can include stocks, LLC interests, bonds, warrants, options, and other instruments issued by a company. The main federal laws are the Se- curities Act of 1933 and the Securities Exchange Act of 1934. Every state has its own laws regulating securities, called Blue Sky laws because they are designed to prevent unethical companies from promising and selling the blue sky above. Companies selling securities must comply with both the federal laws and the laws of any state where it will be offering or selling securities. The goal of these laws is to ensure that purchasers receive enough accurate information to make an informed decision. The Securities and Exchange Commission ("SEC") requires that sellers of securities, known as issuers , register the sale, known as an offering , and provide a detailed pros- pectus containing all sorts of information about the issuer. This process is long and expensive (well into six figures), so the government created exemptions to these rules for companies raising smaller amounts of money. In general, small offerings may qualify for an exemption if they are: · · · · Private offerings Limited offerings (less than $5,000,000) Only offered to qualified investors Only offered to investors residing in the same state as the company Note NOTE Even if your offering is exempt from registering with the SEC, you must still obeyfederal and state anti-fraud laws by avoiding making any untrue or misleading statements or omitting any material facts inconnection with the sale.To minimize therisk of an SEC action and/or shareholders'suit, work with your lawyer throughout theprocess to be sure you comply. Investments in a typical start-up game development company will most likely fall under an exemp- tion, as it is likely to be selling securities to private investors or investment funds, and the amount of investment will be less than $5,000,000. But the penalties, such as fines and recission rights (paying back the investors' money), can be onerous, so work with a qualified corporate attorney to ensure your offering is exempt. Note NOTE While it won't be covered in depth here, note that you probably won'tneed to register stock offered to the company's employees, directors,general partners, and officers of a company; these offerings are generallyexempt under Rule 701. Selling the Company Selling your development company--most likely to a publisher interested in making you an internal studio--is the goal of many entrepreneurs. Other developers prize their independence and control more than the security and payday of selling the company. If you are a big enough star, you can negotiate a favorable price and maintain control. If you are looking to sell your company, you may want to wait until you have at least two interested parties. Your leverage will be much greater. When choosing a buyer, look beyond the dollar signs to find: a company whose future you believe in (since you are likely to receive some compensation in stock); a company culture that values your staff; powerful distribution and marketing in your pre- ferred platforms and genre(s); a buyer who is willing to allow your company autonomy, for instance, the ability to stay in your current location and to choose future development projects.