FAQS
What are securities laws?
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In the U.S., there is a complex web of federal and state laws and regulations that cover what a company must complete when it offers and sells stock, options, convertible notes, and other securities. These laws are in place to protect investors and regulate how securities can be marketed, sold, and issued by companies. Many other countries also have their own securities laws that must be followed when a company sells securities to residents of such countries.
Whenever a company offers securities in the U.S., the general rule is that the company must register the securities with the government and provide extensive disclosures about its business, unless the offering fits within specific exemptions from the registration requirement. The general registration requirement and the exemptions are set forth in rules promulgated by the U.S. Securities and Exchange Commission (SEC) and the various states.
Registration is a costly and time-consuming process involving extensive fees to financial and legal advisors and is the procedure that companies undergo when planning to “go public” or hold an initial public offering (IPO). Accordingly, until they are ready for an IPO, a vast majority of start-ups offer and sell securities through so-called “private placements,” which rely on the exemptions from registration. Relying on the exemptions for a private offering entails compliance with very specific requirements, so companies should seek advice from competent and experienced corporate and securities attorneys to ensure that their offerings fit within the exemptions.
The securities laws are actively enforced by the SEC and state regulators, and investors have the right to litigate in the event that they are misled or defrauded by a company in connection with a securities offering. Companies that are found to have broken the securities laws could be required to rescind their securities and return money to their investors or pay penalties and damages.
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