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Securities Law

Most small businesses will work with banks at some point in their existence, often for loans but also for initial public offerings or other large transactions. If you want your business to sell stocks, it's important to become familiar with federal and state securities laws. Securities laws provide a strict set of rules and procedures related to selling shares of stock to the public, and require strict compliance. FindLaw's section on Securities Law provides information and resources that will help you get a better understanding of this detailed and fairly complicated area of law, including basic terms for shareholders and investors. More specifically, you can find articles on planning an effective annual shareholder meeting, choosing a financing option, the do's and don'ts of insider trading, things to think about before making an initial public offering, a due diligence checklist for going public, and other related information.

What Is Insider Trading?

Insider trading is a type of securities fraud, which is a white collar crime. Basically, insider trading occurs when an "insider" uses confidential information (that is not yet available to the public) to make decisions about buying or selling stocks. An insider refers to anyone who has confidential information about the finances of a corporation. Examples of insiders include high-level employees, such as a Chief Executive Officer (CEO) or a member of the board of directors, and people employed in a corporation's finance department. Even a family member of an employee with confidential financial information can be considered an insider.

If a person is an insider, it's important that he or she avoids certain actions and excercises caution when buying or selling stocks. Anyone with inside information should never trade securities based on that information, nor should they share that information with anyone. A person with inside information should keep up to date with all trading laws and the corporation's policies that apply to a person in his or her position. Finally, if you have doubts or questions about whether your actions could be considered insider trading, you should consult with the corporation's attorney.

What Are Blue Sky Laws?

Blue sky laws refer to the securities laws that are enacted by each state, which are intended to protect society from fraud. These laws work in conjunction with federal securities laws, and cover at least merit review and disclosure. A merit review is a way to regulate disclosure and the fairness of the securities offering to investors. Disclosure laws typically require corporations to fairly and fully disclose all material facts related to an offering. It's important to note that while securities statutes and regulations may be identical in many states, the interpretation may differ from state to state.

Hiring a Securities Attorney

It's important for corporations that offer securities to comply with all securities laws that are applicable to them. An experienced securities attorney can offer guidance on all aspects of securities laws, from a general explanation of the Securities and Exchange Commission (SEC) rules and regulations and blue sky laws to securities-related activities that are illegal.

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