“Companies may raise capital in North Dakota by either 1) registering the security or 2) relying upon an exemption from the registration requirements.  There are some exemptions that do require a filing and approval process prior to making an offer to sell a security. 

 A security is an investment contract which is defined to mean the investment of money in a common enterprise with the expectation of a return based upon the efforts of a third party.  The definition of the term security is very broad and includes debt instruments, ownership interests, a certificate of interest, fractional interests, and certificates to name a few of the different types.

 The North Dakota statute provides a useful tool for companies referred to “Test-the-Waters”.  This program does provide for a filing and approval process before a company can use the program.  Under the program a company can hold informational meetings and contact only North Dakota residents to take indications of interest.  Funds cannot be solicited or accepted and there is no commitment by the person indicating an interest to invest funds at a later date. At the conclusion of this phase, a company can determine if it is beneficial to proceed with an offering of a security, the type of security and dollar amount to be offered, whether the security needs to be registered or if a filing for the approval for the use of exemption is best suited for the proposed securities offering.

 The exemptions from the registration requirements that provide for a filing for approval prior to use are:

1. The limited offeree exemption which provides for offers to not more than 35 persons;
2. The limited offering exemption which provides for offers and sales to an unlimited number of persons provided the dollar amount of the offering does not exceed $5,0000,000 and the entire offering amount is placed into a escrow account; and
3. The accredited investor exemption which provides for the offer and sale to persons defined as accredited investor.  An accredited investor is a person with a net worth exceeding $1 million or annual income greater than $200,000 or joint income of $300,000.