The Long Arm of the (Securities) Law

Securities 法律作业代写 can be confusing and convoluted for both companies and legal practitioners alike. However, this does not make the subject any different from several other complex legal subjects. But unlike other areas of the law, where the applicability of the law is known and the confusion arises in the context of how the law applies the confusion surrounding securities law often causes companies and legal practitioners to fail to realize that their transaction is even governed by federal and state securities laws at all.

The purpose of this article is to provide companies and attorneys with a brief overview of what types of transactions are impacted by federal and state securities laws. Unfortunately, due to the brief nature of this article, it is not possible to discuss what needs to be done to comply with the numerous federal and state securities laws for each of these transactions. Treatises are written to address those issues. The purpose of this article is to get you to the first, and most important step, in the process, which is to realize that your company’s, or your client’s, transactions may have securities laws ramifications that need to be addressed. Getting to that first step should lead you in the right direction with the proper legal advice.

If your company or client is engaging in any of the transactions listed in this article, or similar transactions, chances are very good there is a securities law issue that needs to be addressed and you should speak with a securities law attorney.

There are few simple but very important concepts to remember when determining if your transaction may involve securities laws. First, securities laws govern securities transactions for all private and public companies regardless of size, and are not just applicable to publicly-traded companies. As an attorney practicing securities law for over eight years the most common mistake many companies and attorneys make regarding securities law is the belief that securities laws only apply to public companies.

Second, it is important to understand what constitutes a “security.” For the purposes of this article a “security” is common stock, preferred stock, limited liability membership units, and any instrument convertible into common stock, preferred stock or limited liability membership units, such as a convertible promissory note.

Third, every transaction involving the offering or transfer of a security is governed, to some extent, by federal and state securities laws. A list of some regular corporate transactions is listed below and you may be surprised to learn which ones are governed by federal and/or state securities laws.

Fourth, every offering or sale of a security must either be registered at the federal and/or state level, or meet the requirements for an exemption from registration. The registering of securities offering and sales, or complying with a proper exemption, is covered in numerous treatises and cannot be discussed within the confines of this article.

Out of these four basic concepts a few questions usually arise: i) What type of transactions are governed by the securities laws?; ii) What could possibly happen if I don’t comply with the securities laws?; and iii) My company engaged in one or more of these transactions and didn’t have a securities law attorney review the transaction, what can I do?

To answer the first question lets take a look at a number of typical activities by a fictitious business called ABC, Inc. For the purpose of this example let’s assume ABC, Inc. incorporates in California, and then undertakes the following as a private company:

Which of the above transactions is governed by federal and state securities laws? The answer is all of them. For each of the above transactions a review of applicable securities laws needs to be completed, and in some cases federal and/or state filings may be required. This securities law review should be completed prior to any of the above transactions being initiated. Additionally, in order to meet federal and state securities laws related to offerings of securities, certain disclosure documentation, such as a private placement memorandum and/or financial statements, may need to be provided to investors prior to their investment.

This leads to the second question for most companies: “I didn’t have the required securities law research done and did not do any federal and state securities filings, but I have not heard from any federal or state agencies, what is the possible impact on my business?” This question is difficult to answer. The impact could be varied. If you only issued shares to the founders of the company, although filings may be required, the failure to make the filings may not be detrimental.

However, for companies with an eye towards growth and that took outside investor money, or companies that may attempt to sell their business, or attempt to go public at some in the future, the impact can be devastating. For instance, after the founders of ABC, Inc. have spent countless hours growing their business with a goal of being acquired by a larger player in the industry, when that opportunity finally comes the failure to have properly researched and complied with federal and state securities laws may cause the possible acquiring company to pass on the opportunity to acquire ABC, Inc.

Another possible result could come from a disgruntled shareholder who complains that at the time they made their investment certain information about the company and the risks involved with their investment were not disclosed to them and may file a lawsuit seeking a return of their investment and additional damages.

A third possible result could come from the company with an eye to becoming publicly-listed. If federal and state securities laws were not complied with at the time investors purchased their shares then when the company goes before the Securities and Exchange Commission and other regulatory authorities to register its securities the SEC may question the offerings and validity of the shareholders, or question the failure to register certain offerings of securities, and may leave the company in the unenviable, and very expensive, position of having to admit to the SEC that federal securities laws were not followed and may have rescind the previous non-compliant stock offerings and sales by offering to its shareholders to repurchase the shares they purchased.

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