California Code of Regulations
Title 10 - Investment
Chapter 3 - Commissioner of Financial Protection and Innovation
Subchapter 2 - Corporate Securities
Article 2 - Exemptions from Qualification
Section 260.105.23 - Exemption for Advances to Corporations

Universal Citation: 10 CA Code of Regs 260.105.23

Current through Register 2024 Notice Reg. No. 38, September 20, 2024

There is hereby exempted from the provisions of Section 25110 of the Code as not being comprehended within the purposes of the Corporate Securities Law of 1968 and the qualification of which is not necessary or appropriate in the public interest or for the protection of investors, any transaction in which money is advanced or loaned to a corporation ("issuer") with an agreement or expectation that shares of the issuer will be issued in exchange for, cancellation of, or conversion of such advances or loans, provided that all of the following requirements are met:

(a) The aggregate amount of the advances or loans made does not substantially exceed the funds required to pay the fees and expenses of organization and the initial issuance of share certificates, including attorney fees.

(b) The advance or loan is made by persons, each of whom is in one or more of the following classes:

(1) By a corporation, directly or indirectly, which will have a direct or indirect interest in the issuer.

(2) By any officer, director or controlling shareholder of such corporation.

(3) By any partnership whose business the issuer intends to acquire.

(4) By any partner of such partnership.

(5) By any person who is or is expected to become an officer or director of the issuer.

(c) The number of persons making such advances or loans does not exceed 35.

(d) The issuer has not commenced business other than activities in connection with the organization and preparation for regular business or issued shares at the time such advances or loans are made.

(e) Prior to the earlier of the commencement of business (other than organizational activities) or the issuance of shares, the issuer qualifies such issuance or such issuance of shares is exempted from qualification under Section 25110 of the Code.

This exemption shall not be affected by an agreement or understanding that such advances or loans may be repaid or cancelled by the issuance of shares or other securities of the issuer, but nothing contained herein shall be deemed to modify the requirements for the exemption contained in Section 25102(h) of the Code or to impair the authority of the Commissioner under Section 25140 of the Code.

1. New section filed 1-22-75; effective thirtieth day thereafter (Register 75, No. 4).
2. Editorial correction (Register 76, No. 1).
3. Amendment filed 8-7-85; effective thirtieth day thereafter (Register 85, No. 32).

Note: Authority cited: Sections 25105 and 25610, Corporations Code. Reference: Sections 25102, 25105, 25110 and 25140, Corporations Code.

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