Is Your Company Subject to Securities Laws?

One concern that many folks have when running companies is the possibility that they'll have to comply with securities law. As a general rule of thumb, nearly all capital-raising activities at a business that involves soliciting interest from outside parties count.

It's wise to consult with a corporate lawyer who has a background in securities. Take a look at some of the questions they might be able to answer.

What Is Considered a Security?

Almost anything a company issues with the intent of raising capital is classified as a security. This includes fairly well-known financial vehicles, such as bonds and shares of stock. A lot of other items count as securities, including profit-sharing agreements, investment deals, and many types of certificates and notes. Likewise, some forms of debt may be considered securities. Basically, if you issue a piece of paper saying you'll provide someone with an interest or owe them for their choice to put money into your business, there's a chance it's a security.

How Do You Deal with Securities Laws?

There three possible solutions. First, you might be able to show that the laws, in general, don't apply to your business. Second, you can hire a securities law attorney, get into compliance, and fill out the proper paperwork based on the advice of counsel. Finally, you might be able to identify an exception.

Bear in mind that federal laws aren't the only game in town. Many states have securities laws, too. Also, don't assume that your headquarters dictates which laws you'll have to comply with. If you have an interest in a particular jurisdiction, a corporate lawyer will tell you to assume you need to be in compliance until you have written proof to the contrary from a governing body.

What Happens if You Don't Comply?

Federal and state agencies have broad powers to enforce compliance. In the vast majority of cases, they will impose financial penalties with the promise to reduce or eliminate the penalties once you've complied. Extreme cases can be met with stiffer punishments. For example, you might be prohibited from engaging in capital-raising activities. Misrepresentations may give rise to fines, and willful conduct can even lead to criminal penalties and jail time.

If you end up on the wrong side of the law, you should be honest the minute you know there's a problem. Your securities law attorney can notify the right agencies and get things sorted out. For more information, visit websites such as