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Protecting Your Assets Limiting Liability in Your Business Structure Securities Law Issues SEC Registration and Exemption
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When considering securities law issues in forming your business, you'll need to be aware of the impact of federal regulation.
Generally, before an entity can issue securities, it must first register the offering with the federal Securities and Exchange Commission (SEC) and with the SEC's counterparts in each state in which the securities are being sold, unless an exemption applies.
For a small business owner, there are two common ways to do this:
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Fortunately for the small business owner, an issuance of securities to himself, his immediate family members and a few other partners will usually be totally exempt form both federal and state securities laws. In this case, the exemption generally is "self-executing"--that is, the exemption is automatic.
Generally, an automatic or self-executing exemption will apply when the offering of securities has all of these attributes:
- limited to 10 or fewer individuals who are all organizers of the business or who, alternatively, invested through direct in-person solicitation
- did not involve any use of the mails, telephones or the Internet in solicitations
- limited to one state
A self-executing exemption does not require the filing of any documentation with the federal or state governments.
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