For closely-held businesses that are not backed by venture capitalists or other outside professional investors, securities law compliance can be unfamiliar territory.
Federal and state securities laws generally apply to every issuance or sale of securities by a business. These laws (i) govern the information that the business must disclose to investors, (ii) regulate various types of conduct in connection with an issuance, and (iii) establish a regulatory filing scheme to demonstrate compliance with the laws.
When closely-held businesses issue or sell securities, the issuance either must be registered with the U.S. Securities and Exchange Commission (and applicable state authorities) or an exemption from registration must be available and used. Registering a securities issuance with the SEC essentially means that the company goes public in an initial public offering. IPOs and the compliance burdens of being a public company can be enormously expensive endeavors. Since bearing these costs are impractical for most businesses, the focus then is on finding an available exemption from registration and following the rules to comply with the exemption.
Other posts in this series (more to come):
Securities Law Primer | Part 2: Knowing when you are issuing a “security”
