With all the benefits of people using the Internet for information, people are also finding that there is a great deal of misinformation in business that can be detrimental and can lead to legal and other problems.

One of the most prevalent of business misinformation written on the Internet, found by people who want to raise capital for a new or expanding business, is that a business plan can be used to raise capital (to sell securities such as stock to investors).

Selling securities is any time someone takes or receives money in return for a piece of paper in the form of stock certificates or any other form of paper providing or promising ownership.

Let's set the record straight once and for all. A business plan was created to be used by company founders, board of directors, officers and management as a guide 'a plan' for a company to set goals for the future. The other use of a business plan is to provide detailed information to a company's bank or financial institution. Business plan information should, among other things, show the company's ability to operate and pay back a loan(s). One critical point to be made here is that a business plan cannot sell any form of a security. However, it can be used to acquire a loan.

Loans are not securities. When a bank or lending institution loans a company money, it is backed by either company and/or personal assets (of the founder(s), partners, or officers of the company).

This is where misinformation on the Internet can get people into quite a bit of trouble. Companies and their websites promoting business plans as a means for businesses to sell stock or other security to investors is misleading information. This misinformation on the Internet has been found to be quite harmful to innocent people trying to get a business started or expand a currently operating business.

Why is a business plan not a legal document to solicit investors?

A business plan does not contain federal and state disclosures required by federal and state laws when selling any type of security. A business plan does not contain investor forms such as subscription forms that are required by law. These forms must be filled out by the investors and reviewed and approved by the company before accepting any investment from an investor. This is for the purpose of making sure each investor qualifies.

Using a business plan instead of the proper legal documents such as stock offerings or limited partnership offerings can cause years of legal problems and expenses. Stock offerings and limited partnership offerings have been used since 1933 and have been approved by the SEC (Securities and Exchange Commission).

Disgruntled investors have been known to take a company and its founder(s), partners, and officers to court in the form of an investor's lawsuit. Business plans do not provide risk factors (a very important section that is required by the SEC). Therefore without the risk factors, investors cannot make an informed decision before investing. Keep in mind that the SEC has become a lot like the IRS. Ever since the corporate scandals a few years ago, the SEC has taken violators of securities laws very seriously and has closed businesses, fined and imprisoned founder(s), partners, officers and upper management. This is why it must be stressed that by using business plans to approach and solicit investors for raising capital for a business is wrong and illegal!

One other issue that can lead to lawsuits is the improper type of language (wording) in a business plan which is referred to as marketing hype. Marketing hype is the type of wording that can get people and their businesses into trouble. Business plans do not use any rules or guidelines to follow as to what kind of words should not be used.

The information stated here is to correctly inform people that are seeking to raise capital for their business so that they can make an informed decision and keep from having additional problems. Running a business has enough problems without someone following detrimental misinformation.