Boulder City Magazine® June 2007 Issue
by Rodney S. Woodbury, Esq.
Woodbury, Morris & Brown
Small Business Securities Law Primer
Are you considering investing in a small business or trying to raise capital from private investors to fund your own company? If so, then beware that those investments will likely be deemed “securities” and therefore subject to strict securities laws, regulations, and requirements.
Boulder City Magazine®
|Securities regulation began in the United States in the early 1900s with states seeking to protect investors from unscrupulous promoters of worthless securities. Today, every state has securities laws, commonly known as blue sky laws. Following the onset of the Great Depression, Congress enacted two federal laws, known as the Securities Act of 1933 and the Securities Exchange Act of 1934, designed to fill gaps in the state blue sky laws and further protect investors.
Numerous types of interests have been held to constitute securities under the federal acts and state blue sky laws, including stocks, bonds, pension plans, LLC interests, and many other forms of investments. In addition, under the Securities Act of 1933, any offer to sell securities must either be registered with the SEC or meet an exemption. Many people realize that this is true for large companies that “go public” and offer interests on a stock exchange, but few understand that this is also true for small companies seeking private investors.
Not surprisingly, because registration is expensive, burdensome, and time-consuming, most small companies attempt to qualify for an exemption. There are many types of exemptions, including an intrastate offering exemption, a private offering exemption, a Regulation A exemption, three Regulation D exemptions, an accredited investor exemption, and others. Each exemption has its own unique requirements, but many focus on the dollar amount of the offering, investor sophistication and net worth, the number of non-accredited investors, required disclosures, limitations on the ability to advertise or solicit investors, and whether the securities are “restricted” or not.
Because securities laws are technical and complex, always consult a securities or small business attorney before offering interests in your company to investors. And if you are a prospective investor, do your homework to make sure that the company soliciting your investment in is in compliance.
Rod Woodbury is a shareholder with the law firm of Woodbury, Morris & Brown and can be reached at www.wmb-law.net.
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