Blue Sky Laws

A company offering its equity for sale must comply not only with the Federal Securities law, but also with the state securities law, known as Blue Sky Laws. Every state has its own body of law, which should be consulted if the company either headquartered in a certain state or solicits investments (make offerings) in that state. The securities laws are territorial, which means they protect the territory of the state and its residents. If the offer is posted on the website, it is deemed to be made in all 50 states, the District of Columbia and Puerto Rico. The exemption is if 1) it is an explicit disclaimer on the website that the offer is not for the residents of the certain states and 2) no actual sales are made in those states.

 

Many states have adopted the Uniform Securities Act in order to provide some uniformity and straightforward guidance to the issuers and their legal counsels. However, there are still some states, which have their own independent body of law. Here is the qualified assistance of the securities attorney cannot be underestimated.

 

Federal laws preempt state laws, which means that states can impose additional regulations in relation to the offers and sales of securities, but cannot undermine federal securities regulations. Mane states adopted most of the federal regulations. For example, if a sale of securities is conducted in reliance on one of the federal exemptions from registration, the SEC requires the company to file an informational statement nevertheless within 15 days since the date of the first sale. Many states require similar reporting to be filed with their regulatory agencies, but can change the scope of the information to be provided and require filing fees.

 

Moreover, state regulatory agencies have authority to oversee the offering and sale of securities within their jurisdiction. If the state commissioner is not satisfied with the quality of the offering or sees other red flags, he may deny registration all together. However, the Capital Markets Efficiency Act of 1996 limits the state authority to regulate the sale of securities in certain offerings. For example, if a company sells securities in reliance on the federal exemption from registration Rule 506, the states cannot request a greater disclosure than is requested by the federal government. Federal registration of the initial public offering also preempts state registration requirements and reviews.

 

Similar to the federal securities laws, states provide a number of exemptions from registration before sales can be made.  Those exemptions are based on the type of the offering, the amount, time period, and type of the offerees, company’s eligibility and other matters. An experienced securities attorney will be able to provide qualified assistance and guidance with both federal and state laws and regulations to make sure nothing is omitted and overlooked.

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