An equity line of financing typically involves an investor and the company he wants to invest in. It is used to place securities on the investor through a written contract, and is recognized by the Securities and Exchange Commission (SEC).

Typical Arrangement

The common equity line financing approach places the securities of a company to an investor through a written contract. The company then can tell the investor when to buy securities from the company, and the investor cannot refuse.

Private Equity Lines

It is common for a company to form an equity line of financing and then turn around and then register the securities with the SEC and then resell them on the stock market. This is taken by the SEC as an indirect primary offering of stock.

Public Equity Lines

Public equity lines use the equity line of financing directly as an initial public offering (IPO). This means that the stock is placed on the stock market for purchasing, but directly instead of indirectly.

Issues

Various regulations and requirements by the NASD may prevent equity line financing, so be sure to know where you stand. If you are "engaged in distribution" you may be subject to Regulation M, changing the rules slightly. Investigate before you invest.

Underwriters

Equity line financing requires the investor be identified as an underwriter. This is in addition to the typical registered broker dealer, who must also be identified as an underwriter of the agreement.

Source:

SEC.gov: Excerpt from Current Issues and Rulemaking Projects Outline Quarterly Update

Krieger & Prager, LLP: Equity Line Financings

More Information:

PIPES Report: Aug. 15, 2004