By Julius Brecht
For the Journal

Alaska is a great place to live. But at times we may think we have to do without certain goods or services. Let's say you have an idea to offer. However, you have yet to determine how to fund that business.

Have you considered a mini-lPO - an initial public offering only in Alaska? You may have thought the IPO method was only available to entrepreneurs in major metropolitan areas Outside - the San Francisco Bay area, Boston or elsewhere in the Lower 48. Think again!

The IPO method can be used in Alaska to capitalize a start-up or existing small company. This goal can be met, not through traditional national securities markets or exchanges, but rather through public access to Alaskan investors.

Funding your idea may have greater likelihood of success if it involves goods or services that a broad sweep of the public sees as something it can support in the marketplace.

The start-up might include a new food craze, a new form of entertainment or a new sports franchise. Let's call it "the idea."

Let's further assume that you are not independently wealthy or at least that you wish to have others share in the risk of funding the idea. If the idea involves a start-up, organizing a company to provide the basis for funding the idea is an important first step.

An equity offering in your company is a security offering that is subject to regulation under state and federal law. This regulation comes in the form of requiring registration of the offering and those through whom the offering is made, with limited exceptions.

Those exceptions are several narrowly construed exemptions. However, a registration exemption does not exempt the issuer-company and those involved in making the offering from providing full disclosure of all material facts related to the transaction.

An offering in Alaska is subject to regulation through the Alaska Securities Act and federal securities law.

There is no public offering exemption available under the state act to accommodate the proposed offering. However, there is at least one exemption available under federal securities law - the intrastate public offering exemption.

This exemption has been interpreted by federal regulators through Rule 147. The rule does not establish exclusive standards for the exemption. However, even if you can satisfy the terms of the exemption or that rule, you still must register your offering under the state act.

Consider the advantages and disadvantages of the federal exemption and the rule as applied to an Alaska offering.

The advantages are considerable. They include:

Access to the Alaska public:

Consider that almost half of the state's population of about 630,000 resides within Anchorage. Almost 60 percent of the state's population lies within a 200-mile radius of Anchorage.

Close to 20 percent of Anchorage households have income in excess of $100,000. So, some portion of them ought to have disposable income to allow serious consideration of the idea.

Use of offering notices in all forms of media:

These forms include print, radio and television. However, the state act and regulations adopted under it are silent as to use of the Internet for the offering. A company Web site can be used for commercial information about the idea. Let's assume it is not used in any way to announce or make the offering.

An offering notice is referred to as a "tombstone" notice. Its content is limited to a deadpan announcement of the offering and that it is only made through a disclosure statement. For a public offering, that statement typically is called an "offering circular." The notice further gives the address at which a copy of the offering circular may be obtained.

Use of general solicitation and marketing materials:

The rule allows full general solicitation of Alaska residents as prospective purchasers in the offering. Contact may be made and public meetings may be held regardless of the existence of a prior business relationship.

Under the rule, marketing materials may be structured to best appeal to that portion of the Alaska public targeted for the offering. Of course, those materials must accurately complement the offering terms as set forth in the offering circular.

Use of sales representatives:

Representatives must be registered under the state act unless they satisfy a registration exemption. For example, the company may propose to make the offer through up to five of its officers and directors, all of whom are to receive no commission or fee in the sales effort. In this instance, the Alaska regulator may waive the more time-consuming registration of these persons as agents for the issuer-company.

Where the idea involves goods or services that the Alaska public ought to support, the offering ought to be better received by that public for investment

Some portion of those Alaska residents may become prospective investors in the company.

There are, of course, several disadvantages to reliance upon the federal exemption. They include:

All offers and sales must be made only to residents of the jurisdiction in which the issuer-company is located:

A company doing business in Alaska can make an offering only to Alaska residents. Under the rule, the company is deemed to be doing business in Alaska if it derives at least 80 percent of its gross revenues there.

Even an inadvertent offer or sale of the issuer-company's securities to a nonresident of Alaska seriously jeopardizes the company's ability to rely upon it:

Recognizing residency is not always apparent. For example, military personnel stationed in Alaska are not necessarily residents of our state. They are residents, for purposes of the federal exemption, of the jurisdiction which they have declared in their military service.

Under the rule, all offers and sales must meet all of the rule conditions:

Company offers may be considered a part of the same issue and integrated with the idea offering for respective six-month periods prior to, and subsequent to, the idea offering. This conclusion may result if the offers are part of a single financing plan, involve issuance of the same class of securities, or are made at or about the same time. It also may result if the offers involve the same type of consideration for their issuance or are made for the same general purpose.

Transferability of all securities issued in the offering is restricted only to other Alaska residents during the nine-month period commencing from the date of last sale in the offering:

Under the rule, each certificate or other evidence of ownership of company securities must contain a legend prominently displayed stating the transferability restrictions. The rule also requires the issuer-company to have in place issue stop transfer order instructions to prevent sales to nonresidents of Alaska. Furthermore, under the rule, the issuer-company must obtain a written representation from each purchaser as to the purchaser's residency.

The offering is subject to the full rigors of registration under the state act:

The plan of public solicitation, offering circular, tombstone notice and all marketing materials to be used in the offering must be reviewed and consented to by the Alaska regulator prior to their use.

Where no licensed agent for the issuer-company is used, the entrepreneur must take full responsibility for implementing the offering's plan of distribution:

Sale of the company's securities can be extremely time-consuming. This effort can be carried out by officers and directors. Nevertheless, it occurs at a point in the start-up process when the entrepreneur should be devoting considerable time to commercial aspects of establishing the idea.

Even with the entrepreneur's full commitment, no assurance can be given that the public will be receptive to the offering:

Even if the public is interested in the idea, there can be no assurance that a sufficient number of prospective investors comes forward to participate in the company's intended capitalization of it.

Julius Brecht is an attorney in private practice and shareholder with the law firm of Wohlforth, Johnson, Brecht, Cartledge & Brooking, A Professional Corporation, with offices in Anchorage. Brecht's concentration of practice is in state and federal securities law and corporate and finance law. The content of this article was not prepared as, and must not be construed as, legal or investment advice to anyone. He may be reached at jbrecht@akatty.com.