This week we continue our series on raising money from investors. In Part 1, we covered why this complex area of law matters, even if you’re just raising money from friends and family. Complying with securities laws requires that you register at both the federal and state level or comply with an exemption (again, at both levels). In Part 2, we explained the common exemptions to registration at the state level. In Part 3, we looked at the common exemptions at the federal level. As we explained there, some of the federal exemptions leave quite a bit of room for interpretation, causing some businesses to rely instead on certain “safe harbor” provisions. 

Just what are the "safe harbor" provisions? Can you ever advertise that you're seeking investors? And is an offering document really necessary?

In Part 1, we covered why securities laws matter for small business owners who are trying to raise money to start or grow their business. Remember, anytime you raise money by promising some sort of return on investment, then securities laws apply. And if securities laws apply, then 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 some of the legal complexity. In Part 2, we discussed common exemptions to registration at the state level. This week, we turn to some of the common federal exemptions.

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.