The Importance of Identifying Whether Your Business Is Violating Securities Laws
When raising capital, issuing stock, or even offering new investment opportunities, many business owners don’t realize they may be stepping into the world of securities law. And violating these rules — even unintentionally — can result in serious penalties, lawsuits, and regulatory action.
Whether you’re a startup raising funds from friends and family, or a growing company exploring more sophisticated financing, it’s critical to know whether your activities fall under securities regulations.
What Counts as a “Security”?
The term security doesn’t just mean public stock. Under federal and state law, securities can include:
Shares of stock in a corporation
Membership interests in an LLC
Convertible notes or SAFEs (Simple Agreements for Future Equity)
Investment contracts
Even certain digital assets or tokens
If you are offering ownership or the right to profit in exchange for money, chances are, you’re dealing with a security.
Why It Matters
Failing to comply with securities law can lead to:
Fines and penalties from the SEC or state regulators
Investor lawsuits seeking to rescind their investment
Reputational harm that can stall future fundraising
In extreme cases, personal liability for business owners and directors
Often, these issues arise not from bad intent, but simply from misunderstanding what qualifies as a security.
Common Risk Scenarios for Businesses
Offering equity to investors without filing required notices
Raising funds from friends and family without following exemption rules
Promising returns in marketing materials that cross into securities territory
Launching a token or digital asset without proper legal analysis
How to Stay Compliant
The good news: businesses can often raise money legally without the complexity of a public offering — but only if they structure it properly.
Steps include:
Legal assessment of whether your offering is a security
Identifying exemptions that allow you to avoid full registration (such as Regulation D)
Preparing proper agreements for investors
Filing notices with federal and state regulators where required
Liermo Law’s Role
At Liermo Law, we guide businesses through the legal landscape of fundraising with flat-fee securities assessments and compliance support. We help you:
Determine if your offering is a security
Identify the right exemption or path forward
Draft compliant agreements (stock purchase, convertible notes, SAFEs)
Reduce risk before talking to investors
Final Thoughts
Fundraising is exciting — but it comes with serious responsibilities. Identifying whether your business is dealing with securities law is not optional; it’s essential to protecting your company and your future.
With the right legal guidance, you can raise capital confidently, avoid costly mistakes, and focus on growing your business.