Understanding Securities Laws
What is a security? Basically, securities have been held to exist in any case in which a person provides money to someone with the expectation that they will derive a profit through the efforts of that person. This can apply to any situation in which someone buys stock in or makes a noncommercial loan to your business. The company that sells securities is known as the issuer.
There are basically two types of securities offerings—public and private. The private placement offering is the means used by most new businesses to raise their initial capital. It is far less costly than a public offering, and is not subject to the review process of the Securities and Exchange Commission (SEC) and the state agencies. The sale is accomplished through the use of an offering document known as a private placement memorandum (PPM), which is prepared by an attorney who specializes in securities law. When you sell equity in your company (common stock or preferred stock, limited partnership interests, or LLC membership units), you must comply with the federal and state laws regulating the sale of securities.