Business owners often look first to friends and family when looking for sources of potential financing for their business endeavors. Supportive friends and family are sometimes willing to back that support with funds in exchange for part ownership or a promise to repay the funds from the business down the road with a little extra. The pitfall of this sort of support is these sorts of loans and investments from friends and family members are sales of securities which are subject to applicable securities laws and regulations. Read more about types of securities.
Business owners frequently believe in error that raising money from friends and family is an exemption from the restrictions and regulations applied when raising money from wealthy investors. Friends and family are not an exemption under federal securities laws and regulations, nor is it an exemption under Florida’s securities laws.
Companies are required to comply with all the same regulations and restrictions which would apply when raising money from any other sort of investor. A lack of proper documentation, disclosures, and filings can open the company up to liabilities, fines, and a right for the investor to demand their money back and reverse their investment. Depending on the state of the business when an issue arises, it could mean the end of the business and potential problems for the owners themselves.
Read more about the basics of raising capital funds.
O’Brien Law assists clients in analyzing the issues surrounding raising capital for start ups and growing businesses. Please contact our attorneys to discuss your funding goals and pathways along with potential representation to assist your business through the process.