I am almost finished with a business plan for an Interactive
Entertainment Center (Cyber Gaming Center).  I have some investors
waiting to see the plan.  I hope to raise at least $250,000.  I have
been told that I can't just accept the money myself.  I must file some
forms, etc. to allow me to be able to take their money the proper way.
 A friend told me he believes it is a form 506c.  I can't find out
anything about this.  I will also be giving shares of the corporation
to some investors, but again I can not give out the shares myself
someone else has to do it for me.  I'm getting a little confused. 
What are the steps to do these things I've mentioned?

---

Clarification of Question by arturo-ga on 17 Jan 2003 14:36 PST

I tried to clarify earlier, but GA was upgrading or maintenance.  I
have already incorporated.  I have an appointment with my CPA next
week.  I just wanted to get some information on the process.  What has
to be done, what are the choices etc.  This is so I understand it
somewhat before selecting an attorney.

Dear arturo-ga,

Now that you have incorporated, you can fund your corporation in three
ways: issue stock, issue bonds, get a bank loan.  Because you are
forming a "start-up", it would be very difficult to secure a bank loan
or find anyone to buy your bonds.  The most common way to fund
start-ups is by issuing stock to investors who will then be co-owners
of the business with you.  The good news is that you are not liable to
pay back the $250,000 if your business fails. Issues to consider here
is whether you will maintain a controlling (51%+) share of the
business.  If not, do you trust your partners to make good decisions?

The paperwork to issue stock is fairly straight-forward.  When you
incorporated, you should have received a packet of stock certificates.
 To issue stock, you write a stock certificate to the purchaser and
record it in the stock ledger.  Create and keep a bill of sale
documenting the sale of the stock.  The number of shares you issue
depends on the number of outstanding shares.  If there are 100 total
shares and you want to keep 51% of the business, you would issue no
more than 49 shares to the investors.

That is the basic process, but get a lawyer to help you especially
since it sounds like this is your first business and you are dealing
with investors and their $250,000.

You are right that you do not accept the money yourself.  You need to
open a business bank account to deposit the funds, and to handle *all*
other transactions regarding the business.  Do not mix your business
and personal accounts ever.  Failure to follow the rules may result in
loss of limited liability and prosecution, especially if your business
should fail.  When you sign a contract or a loan, always sign it as a
corporate officer, not as an individual or you will be individually
liable.

Check these links for good overviews of financing new businesses:

http://www.soho.org/finance_articles/Financing_Your_New_Business.htm

http://www.entrepreneur.com/Your_Business/YB_Node/0,4507,156,00.html

http://www.inc.com/guides/finance/20797.html


Good luck in your business!

sweetcaro333-ga

Excellent, this is just what I needed for now. Thanks much.

The message you might have could be that you can't simply file away
that $250k in your bank account and start working, you have to form a
business first. If investors want shares, then you will have to form a
corporation. I for one would never try to enter into this kind of deal
without speaking to a lawyer first, and if I could afford it, having
him sat next to me during the meeting. Pricy, but not as expensive as
simply trusting venture capitalists.

A lawyer can give you full advice about taking their money. He can
also advise you on a business medium. There are important consequences
that exist as part of that, which could determine whether or not you
find yourself $250k in debt if your business goes bust.

Sure, your advice will cost more that $15, but paying for a lawyer
makes sure you get it right, and if you don't you can sue him (you
can't sue us!).

As much as I hate Lawyers, Jumpingjoe gave good advice. The process
varies from state to state and is different in each country, so you
need to tell us where you will organize your corporation. New Jersey
used to be the best place but I suspect other states may be better in
2003. Details are important as your backers will squeeze you out if
you leave a loop hole that allows them to do that. You should not
select an attouney recomended by one of your backers, but you do need
a lawyer who specilizes in forming corporations for inventors. Good
luck. It is a jungle out there. You need to learn as much as you can
about the process. The Small Business Administration? = SBA gives free
monthly lectures in most big USA cities. I think they call them work
shops.  Neil