Securities Straight Talk Vol. 1: Securities Laws Matter To Startups (Yes, Yours Too) 


Likely you are at least somewhat aware of the securities laws in this country; the SEC, Dodd-Frank, and insider trading (here’s looking at you, Martha) are familiar topics in the business community. However, you may not be aware that securities laws matter, not just to big businesses and celebrity tycoons, but to startups just like yours.

So, what exactly is a security, and how does it relate to my startup?

Any time you sell an investment in your business—be it equity, debt, bonds, investment contracts, etc.—you may be dealing with a security and, therefore, be subject to securities laws.  And the general rule is, absent an exemption, all offers or sales of securities must be registered with the SEC, an extremely time-consuming and costly process.

The Good News: There’s Exemptions

The good news is that there are several exemptions available for smaller companies, and securities regulators are continuing to implement and amend rules that favor small business and capital growth. These exemptions include private offering exemptions (see our handy chart here), crowdfunding exemptions, and exemptions for employee benefit plans.

The Bad News: There’s Complex Requirements

The bad news is that many of these exemptions come with detailed requirements, restrictions, and notice filings and fees. That’s where your attorney comes in. She can help determine the appropriate exemption, structure your offering in a way that satisfies the requirements, and submit the necessary filings on your behalf.

Check out our Selected Offering Exemptions Chart for an overview of securities exemptions

What about state securities laws?

Thanks to our federal system of government, not only must an issuer satisfy federal securities laws, but it must comply with the state securities laws of each and every state where the securities are offered or sold. This can get messy.

But fear not. In this blog series, we will provide the straight talk on federal and state securities laws to help you navigate the web of regulation. Our goal is not to make you a securities expert, but to provide you with just enough information to enable you to have a productive conversation with your attorney…and impress your friends at a dinner party.

About the Author(s)

Vela Wood