Manhattan Beach, CA asked in Securities Law for California

Q: I have a small startup that some friends/family want to invest in.

Do securities laws apply to the sale of stock to friends/family?

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1 Lawyer Answer
Reno  Fernandez
Reno Fernandez
  • Santa Clara, CA
  • Licensed in California

A: Good question. The short answer is "yes." Some of the federal and state securities laws apply to all equity investments regardless of the status of the investor.

However, some investments are exempt from registration, which simplifies things and saves costs. For example, private offerings of stock are exempt from registration under Section 506(b) of the Securities Act of 1933. Such private placements are exempt from registration under California state law pursuant to Corporations Code Section 25102(f). Other exemptions may apply as well.

But it is important to know that: (1) each of these exemptions has other requirements that are not covered here but are crucially important; and (2) even if exempt, you must still file certain forms to let the government know you claim the exemption. For the federal government, the applicable form is "Form D." For California, the form is called a Limited Offering Exemption Notice (LOEN). Thank you.

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