In Part 1 of this series, we explained how securities laws impact small businesses that are trying to raise money. Before asking someone to invest in your business, you must comply with both federal and state laws, and you must either register (at both the federal and state levels) or be exempt from registration. Not surprisingly, most small businesses try to fit within an exemption from registration to avoid unnecessary filing fees and regulatory complexity.
So what are the common exemptions Ohio small businesses rely upon at the state level? (Remember, we’re discussing investors who are located in Ohio. If your potential investors are located in another state, you would have to look to that state’s securities laws to determine whether there are any exemptions from registration in that state.)
Raising money is a critical concern for most start-ups and small businesses. Whether it's seed funding to get the business started or raising capital to take the business to the next level, every business needs money (and probably more of it). But it's not as simple as offering potential investors an opportunity and then letting the money pour in. Anytime a business seeks to raise money by promising a return of some sort on the investment, then securities laws apply. This includes offering an ownership interest in the business (whether that's stock in a corporation or a membership interest in an LLC) and even debt obligations like promissory notes. In this series, we'll break down these securities laws and how they apply to small businesses.