You cannot use unlicensed money “finders” to raise capital for your business and agree to pay them a commission or other success-based compensation if they are successful in raising capital. State and federal security laws only allow licensed broker/dealers to work on commission or success-based compensation. There are no grey areas. I know people violate these security laws and get away with it but that does not make it legal. If you rob a bank and get away with it it does not make bank robbery legal.
You can try fancy titles such as “consulting fees”, “marketing fees, “expense fees” etc. but if the fees are tied to the success of the “finder” in raising capital your dead if the regulators catch you.
The only legal methods to compensate an unlicensed “finder” is a flat fee or hourly fee that is not contingent on the successful closing of any financing. Thats right you must pay even if the “finder” is not successful.
California Corporations Code Section 25501.5 gives investors the right to rescind their investment and demand their money back when an unlicensed ”finder” acting as a broker/dealer procures their investment in any transaction. Code of Civil Procedure Section 1029.8 allows the court to award attorney’s fees, costs and treble damages up to $10,000.00 In addition, both you and the ” finder” could be subjected to civil and criminal penalities. Regulators can also impose fines and prohibit you from offering securities in future transaction.
In an article written by John P. Cleary, Esq. June 2009 he states ”Over the past 18 months, the SEC has actively pursued investigation and enforcement actions for violations of the broker/dealer laws as they relate to unregistered finders.” Investors are also bringing their own legal actions against issuers to rescind their investments.
If your raising capital for your business follow the law. You either pay for the cost of raising capital in advance regardless of the outcome or you pay a great deal later on when the SEC comes knocking on your door.