Securities Laws and Small Businesses

By August 14, 2017 Blog No Comments
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The Securities Act of 1933 (Securities Act) and the Securities Exchange Act of 1934 (Exchange Act), promulgated by the Securities and Exchange Commission (SEC), are designed to ensure that companies provide necessary disclosure to potential investors regarding their business and financial products that are made available for sale. For the most part, subject to certain exceptions, all businesses that offer securities have reporting obligations under the Securities Act. This means that businesses, both large and small, that sell to the public must be familiar with their disclosure requirements. However, there are a number of initiatives undertaken by the SEC that apply only to small businesses and are designed to ensure that small businesses are not unduly burdened by such regulatory requirements.

Public offerings.  Once a business determines that going public is necessary to raise additional capital, it must file a Registration Statement with the SEC that describes the business and its activities as well the securities being offered. As an alternative to the disclosure obligations in a typical registration statement, the SEC adopted Regulation SK which is designed for use by issuers with small businesses. The obligations under Regulation SK are adjusted to reflect the needs and capabilities of small companies and their investors. Qualifying smaller reporting companies must prepare their SEC reports and statements with the same forms used by other reporting companies, but the SEC requires these issuers to disclose different types of information.

Exemptions from reporting obligations.  Small businesses can also offer securities without registering the securities with the SEC, thereby avoiding the reporting and disclosure obligations discussed above. There are a number of exemptions based on the type of issuer or the nature of the security offered. For example, issuers are not required to comply with disclosure obligations if they are offering and selling securities solely to one or more accredited investors as defined by the Securities Act.

Office of Small Business Policy.  The SEC’s Office of Small Business Policy was created to oversee regulation for small businesses. Its goals are to manage rulemaking for small business and to examine how SEC rules impact small business issuers.

Contact Shane Coons at 949-333-0900 or visit his website at www.ShaneCoonsLaw.com to find out more about his practice.

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