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Abiding by Securities Laws

Page history last edited by PBworks 11 years, 11 months ago

Securities laws are meant to protect investors

from unscrupulous business owners. These laws

require corporations to jump through some hoops

before accepting investments in exchange for

shares of stock (the “securities”). Technically,

a corporationis required to register the sale

of shares with the federal Securities and Exchange

Commission (SEC) and its state securities agency

before granting stock to the initial corporate

owners (shareholders). Registration takes time

and typically involves extra legal and accounting fees.



Fortunately, many small corporations get to skip

the registration process because of exemptions

provided by both federal and state laws. For

example, SEC rules don’t require a corporation

to register a “private offering,” which is

a nonadvertisedsale of stock to either:


1. a limited number of people

(generally 35 or fewer), or

2. those who, because of their net

worth or income earning capacity,

can reasonably be expected to

take care of themselves in the

investment process.


Most states have enacted their

own versions of this popular federal



If you and a few associates are

setting up a corporation that you’ll

actively manage, you will no doubt

qualify for an exemption, and you

will not have to file any paperwork.

For more information about federal

exemptions, visit the SEC website

(www. sec. gov). For more information

on your state’s exemption rules, go to

your secretary of state’s website.


Don’t conceal, lie, or exaggerate

about the investment opportunity.

Always provide potential investors

with everything that is available

for them to make a knowledgeable

decision. When in doubt, disclose,

disclose, disclose.


 Don’t make public advertisements

of your investment opportunity.


 Don’t accept investments (or any

payment for interest in your invention)

unless the transaction is

exempt from security registration requirements.

If in doubt, speak with an attorney.


 Do include the following notice on all solicitations,

business proposals, and business plans: “Investing in

this enterprise involves considerable risk and should

not be done unless you are prepared to lose the complete

investment. Estimates of projected income or revenue are

speculative, and this company does not presently have the

capital required to meet such projections.” You can learn

more information about SEC exemptions at the SEC website

(www. sec. gov). A quick way to research your state’s exemption

rules is to go to the home page of your state’s securities

agency, which typically posts the state’s exemptions rules

and procedures. To find your state securities agency, go to

your Secretary of State’s website.




source: nolo.com

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