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Seminole Securities And Business Law Blog

Tesla CEO charged with making false statements about funding

Businesses small and large are required to follow certain rules. The world of regulatory compliance and securities law can be complex, but at its heart readers of this blog should know that the rules in places are there to keep the game fair for companies, shareholders and prospective investors. This can mean penalizing individuals and corporations that exaggerate earnings, misstate important information about their structures or otherwise entice financial speculation and interest in securities that are not founded in reality or even legal processes.

A prime example of how securities law can affect a corporation and its leaders' abilities to disseminate information about it recently broke in the news. Florida residents may know Elon Musk as the chief executive officer of Tesla, a company that has made a name for itself in the electric car market. Musk allegedly used the social media platform Twitter to issue a statement that suggested he had secured funding to make Tesla, a publicly traded company, private.

Do I need a business partnership agreement in a merger?

Merging companies takes a lot of work to be successful and meet certain regulations, but many times the importance of a business partnership agreement is forgotten. When two entities become one, there are differing cultures and processes that can clash, especially when two people are responsible for making decisions.

If you are in the process of merging two companies and both businesses’ owners are going to continue to be in leadership positions, it is worth looking into a partnership agreement as part of the merger.

Why are securities subject to strict governmental regulation?

Past posts on this Florida securities and business law blog have discussed what a security is and what it offers to individuals who purchase them. A security is an investment tool that allows a person to acquire an interest in an entity with the opportunity to see their investment grow as the entity expands its operations and holdings. Getting in on the ground floor of a new securities offering can be a big deal for someone who believes that the entity the securities support will be the next Google or Apple.

However, entities generally only grow when investors continue to buy into them through the purchase of securities, and to this end entities may be compelled to make investment in their securities more attractive by falsifying information or perpetrating fraud on actual and potential investors. Because the potential for abuse is so high in the world of securities, government regulations apply to practically every aspect of offering securities on the market.

What is the purpose of the Securities Act of 1933?

It is likely that some of the readers of this Florida securities and business law blog purchased something without having all of the information about the item. In some cases, the purchase may be just what they need, but in other cases, the item they receive may not be what they bargained for. Most individuals want to have the best information possible about the things they invest in so that they are sure they are using their money wisely.

In a similar vein, investors and purchasers of securities do the exact same thing, and the way that they learn more about the securities they may wish to purchase is through reviewing the financial and structural information offered by the entities that provide the securities. Entities that offer securities are required to provide specific information before those securities may be offered for public sale.  This requirement is one of the main purposes of the Securities Act of 1933.  The disclosure requirements are set forth in Securities and Exchange Commission ("SEC") Regulation S-X and are included in a registration statement and prospectus that is filed with and reviewed by the SEC.  The most common registration used by issuing entities is SEC Form S-1.

What is a private placement offering?

A private placement offering of securities is a non-public offering of a company's equity ownership interests. The ownership interests can consist of common stock, preferred stock, membership interests, options, warrants and convertible debentures. Typically, a company will engage in a private placement of its securities to raise operational capital before it ever seeks to "go public" by filing a registration statement with the Securities and Exchange Commission ("SEC") or otherwise engage in a reverse merger with a company that is already a publicly traded entity. The securities in a private placement are typically sold directly to investors by the officers and directors of the issuing company. The securities sold in a private placement are deemed "restricted securities" as such term is defined in SEC Rule 144 and may not be transferred for at least six months on any public market such as the New York Stock Exchange, NASDAQ or OTCQB Market. The purchasers of securities in private placements become equity owners of the issuing company and may ultimately realize profits from their investment through appreciation in the price of the security or the distribution of dividends by the issuing company.

There are various exemptions from registration that companies can utilize in selling their unregistered securities. The most commonly utilized transaction exemption is found in SEC Regulation D, Rule 506. This exemption allows companies to sell an unlimited dollar amount of their securities to an unlimited number of "accredited investors." An accredited investor is an individual who has a net worth in excess of $1,000,000 or annual income of at least $200,000 or $300,000 when investing with their spouse. Under both state and federal securities laws, a company may not sell its securities to more than 35 "non-accredited" investors in any single private placement offering. Florida has a self-executing transaction exemption that typically does not require the filing of any documents with the Florida Office of Financial Regulation or the payment of any filing fee. Each other state requires the filing of a Form D and payment of a filing fee in each Regulation D, Rule 506 offering.

Selecting a legal structure is an important step

Different businesses may be organized in different ways and how business owners elect to structure their enterprises can have major impacts on how those entities sell shares, establish internal leadership and pay taxes. This post will discuss some of the common ways that Florida business owners may choose to structure their new business entities, but readers are reminded that this post is not comprehensive nor does it offer any legal advice.

A business may be set up as a sole proprietorship, which means that a person is fully in charge of how their business is run but also personally liable for the financial failures of their entity. Naming an entity is one of the most important steps in establishing a sole proprietorship.

Cryptocurrency company gets approval to sell securities tokens

The world of cryptocurrency is an emerging financial and technological field that has pushed regulators and lawmakers to keep up with the ever-evolving and ever-growing online economy. For the most part, cryptocurrencies like Bitcoin have been offered as online money, given value by those who recognize it for purchases and online transactions. However, just recently one cryptocurrency company achieved a new status for its product.

Coinbase, a U.S. based entity, announced recently that it has been approved to sell tokenized securities through its cryptocurrency system. The Securities and Exchange Commission and the Financial Industry Regulator Authority approved the sale of the company's securities tokens though the entity will have to seek further approval to allow the sales under its current license.

What every company should include in a non-compete agreement

Losing a valuable employee is always tough for a business owner. You relied on your employee’s expertise, and now you must start over with someone new. If you are lucky, you had the foresight to have your employee sign a non-compete agreement. However, for many small business owners, this might not have been on your radar. Now you are wishing you had taken the time to create one.

Your company may never have used non-compete agreements. Or maybe you are unsure if an agreement you created is legal. Either way, here is some information you should consider including in your next employee’s non-compete agreement.

What characteristics must a financial instrument have to be a security?

Determining whether a financial instrument is to be included within the definition of the term "security" under state and federal law may require a complex analysis. The definition of a security is included in state and federal statutes, but the analysis may not stop there with the mere written words. In fact, a security can take on different forms, from the stocks offered by companies raising capital to the bonds offered by various local and state government entities. Securities include obscure instruments such as whiskey warehouse receipts, as well as common promissory notes.  Determining whether such instruments constitute a "security" may involve the use of judicially-created analysis/tests such as the "Howey test" or the "family resemblance test."

Many small, emerging growth companies utilize transaction exemptions from registration under state and federal law to raise capital for their companies through the issuance of securities.  Structuring securities offerings to comply with these transaction exemptions or otherwise going through the registration process is complex and can involve pitfalls for individuals lacking experience in such matters. Consultation with an experienced securities lawyer can be essential to understanding applicable securities laws and compliance therewith.

Helping you with the beginning of your business

For some, starting a business is a lifelong goal. It can take much time to save up the money to start such an endeavor; however, when the time finally comes to put this dream into motion, there are various legal steps to take to ensure it can go as smoothly as possible. This also helps ensure your rights are protected as well as your business.

When starting a business, it is vital to determine what type of business you want to form. Additionally, those seeking to start a business in Florida and any other state in the nation should take the time to make a business plan. While this might seem daunting and intimidating, it is possible to complete these important and necessary steps with legal assistance.

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