For the Anchorage Journal of Commerce

However, private offerings in Alaska companies can have advantages not shared with investments outside of Alaska.

Let's be sure about defining a private offering of an equity or debt investment before we consider possible advantages and disadvantages of each. Equity investments include such things as offers of common stock, or options to acquire that stock, in a corporation. They also include units in a limited partnership or member units in a limited liability company.

Debt investments include offers of preferred stock in a corporation or promissory notes issued by a corporation, limited partnership or limited liability company.

Under Alaska and federal law, all of these equity or debt investments are securities. Generally, an offer of a security under that law requires registration of the offering before the offer and sale of the investment may be made by the issuer, with limited exception

However, these exemptions do not exempt the issuer from the disclosure requirements of that law. The specific disclosure requirements may vary from state to state and between state and federal law. The nature of the requirements is typically to require the disclosure of all material facts related to the offering of the securities.

Generally a private offering is one accomplished without general solicitation. That is, the company making the offering does not make use of public advertising, general meetings with groups of prospective investors, or public announcements of the offering. Typically, the company must have a prior business relationship with the prospective investor.

Regulation of security offerings under Alaska law is accomplished through the Alaska Securities Act. Whether an offer of a security is registered under that act or exempt from registration under one or more of its provisions, the offering company must comply with the act's disclosure requirements. Similarly, the company must separately comply with the disclosure requirements under federal securities law.

Why consider local investment?

Now, why might an Alaskan seeking equity or debt investments consider a private offering made by an Alaska company? There are several reasons to consider, but here are just a few:

• Investment in an Alaska company is an investment in a local business. The prospective investor has the opportunity to walk down the street, go across town, or travel to a nearby community within Alaska to view first-hand the operation of the company, ask questions of its management and evaluate from direct observation the responses received.
• Investment in an Alaska company run by local business people in the community allows the prospective investor the opportunity to evaluate the company's management not only through the company's disclosure statements but also through management's general reputation and stature in the community.
• The products or services provided by an Alaska company, because its size is likely more modest than large publicly traded companies, may be more limited and focused and the purpose of those products and services may be more easily understood.

It may be easier for the prospective Alaska investor to draw investment conclusions about a product or service that will be used in the community in which he or she resides than to evaluate whether an international conglomerate's multimillion dollar venture to sell a product half-way around the world will be a success.

• Even if the product or service contemplated by an Alaska company is aimed at a larger market outside Alaska, it may be one whose nature may be better evaluated by an Alaska investor because the product or service makes sense in the local marketplace in which the investor has direct experience.

For example, an Alaska company which manufactures and sells outdoor foul-weather clothing has a wonderful opportunity to build its reputation for dependable, durable goods by showing it can stand up to Alaska weather in any season.

• Investing in an Alaska company is good for Alaskans. It helps create jobs and wealth in Alaska and promotes a stable local economy. It keeps investment capital in Alaska rather than sending it to markets outside the state.

Some disadvantages

There are corresponding disadvantages to investments in Alaska companies. They are high risk and illiquid. The generally smaller nature of Alaska companies may make them less able to weather downturns in the general economy and more dependent upon key management for their success.

As a practical matter there is no market for resale of an equity or debt investment acquired in a private offering. An Alaska investor should only invest in such a transaction with an intent for long-term investment, not short-term gain through resale.

The bottom line is that a prospective Alaska investor may have possible investment opportunities literally right around the corner and down the street. They will likely be high risk.

On the other hand, they will likely provide the prospective investor the opportunity to research the offering more directly and bring to bear the investor'sknowledge of the Alaska scene and general understanding of the company's business area.

*Julius J. Brecht is managing shareholder and an attorney in private practice with the law firm of Wohlforth, Vassar, Johnson & Brecht in Anchorage. He may be reached via e-mail at jbrecht@wvjb.com. The content of this article was not prepared as, and must not be construed as, legal or investment advice to anyone.

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