Experienced Securities Laws Attorneys Serving California Clients

For many small businesses, one of the easiest ways to get off the ground is to solicit the help of investors. They can provide some of the initial cash flow that may be needed to make beginning investments in infrastructure, equipment, and high quality employees.

While outside investment has become a reality for many small businesses and start-ups, few appreciate the unique risks and potential securities issues that come with eliciting outside help and new cash flows. Without being careful, the promises you make to investors and representations you provide can lead you into big trouble down the road.

What Are Securities Risks for Rancho Cucamonga Companies?

If you’re a small business owner who has never thought about securities laws, you’re not alone. For most individuals the idea of securities or agencies like the SEC conjure up images of hedge funds and big banks. While these big players are indeed subject to securities laws, the reality is that other smaller companies can be as well.

Anytime that you receive money in exchange for a portion of your company through stock or equity, you are potentially providing a security, which requires you to abide by federal and California securities laws. Typically, these laws require that you register the security before providing it to others. If you fail to do so, or engage in questionable conduct in relation to those securities, you could potentially be subject to civil or criminal penalties.

Thankfully, both federal and state law provides certain exemptions that can apply to small businesses who are acquiring investors and therefore offering up a piece of their company.

Common California Securities Exemptions

Some of the common exemptions that are frequently used by small businesses and startups in California include:


  • Section 25012(f) for founders, friends, and family. This exemption allows individuals who start a business to secure investments from their own bank accounts as well as from friends and family without having to register these issuances of equity or having to comply with California’s securities laws. The key requirement is that you had a prior personal or business relationship with the individual.


  • Section 25012(o) for employees and consultants. This exemption allows your employees to receive stock options or equity without these benefits having to be registered under California’s securities laws. As many employees are often offered stock in their initial employment offers, this is a powerful exemption. There are certain important rules that apply to this exemption so it should be reviewed carefully.

While these two exemptions cover many of the situations that arise when companies are seeking initial investments, this is not an exhaustive list. Small businesses should consult with a securities or business attorney before offering equity. Additionally, while this covers California exemptions, companies must also make sure to comply with federal laws.

California Corporate Attorneys Helping to Protect You from the Possibility of Securities Violations

The offering of securities such as stock or equity can be very complicated, and is a heavily regulated area of business. If you are considering the prospect of outside investment, you should make sure to get your ducks in a row, and have a grasp of the securities processes and requirements, before starting out.

At CKB Vienna, LLP, our corporate attorneys can work with you to review applicable laws and restrictions, and to determine whether any special exemptions apply that will protect you from the threat of lawsuits or criminal penalties down the road. For more information, contact us online or at (909) 980-1040.