Obviously, this gives businesses a much-needed tool for raising capital. Small companies have successfully used SCOR to sell stock without a securities underwriting firm. This works particularly well with an established customer base or other supportive source of investors. It is designed to be used by companies and their attorneys and accountants which are not necessarily specialists in securities regulation. Historically, state legislatures have generally followed two approaches to the regulation of public offerings of securities, such as those made under Form U-7.
Some states deal solely with the disclosure made to investors.
In addition to disclosure, other states also apply substantive fairness standards to public offerings, in order to assure that the terms and structure of the offering are fair to investors. In particular, those standards are designed to require the promoters of the enterprise to share its potential risks and rewards fairly with the public investors. Those standards vary from state to state and as a general rule must be complied with by a company in order to register its securities in those states. You may anticipate receiving comments from examiners in many of the states in which Form U-7 registration is sought. Depending upon the regulatory approach taken by the state, those comments may be limited to request for disclosure of additional information or may also require that certain terms of the offering be modified to comply with the state's substantive fairness criteria.