Is securities law compliance really all that important for a small company raising money from friends and family? (Yes, it is.)

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One of the things that new entrepreneurs often find most shocking is the degree of restrictions that both the federal and state governments impose on their capital raising activities. To them, it is simply unbelievable that the government would regulate who they sell their company's stock to or from whom they take loans. Securities law is something they associate with large public companies, not the small nimble companies that they started. Once they realize that, yes indeed, securities law applies to their company, their next question is usually: are there really any consequences for not following these seemingly silly and intrusive regulations? Unfortunately, there are. Small companies must either comply with the registration requirements of securities law or find an appropriate exemption. In addition, they must take appropriate steps to ensure that the anti-fraud provisions of securities laws are not violated. Failure to do so can result in criminal or civil penalties, civil lawsuits, or prevent the company from engaging in further fund-raising activities.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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