Thoughts of future hirings will inevitably bring Deborah and Dave to consideration of another of the challenges they anticipated. Raising money from their potential investor (as well as probable future rounds of investors) involves another set of complex legal issues.
As an alternative to institutional lending, Deborah and Dave plan to turn to an outside investor. Although it will be difficult to attract venture capitalists to such a small startup, other sources of capital in the form of friends and family or local professionals and other individuals or entities with an interest in ground-floor investing may be available. Having chosen to take this route, it is crucial that they purge themselves of two common misconceptions.
Although most businesspeople are aware of the fact that both federal and state law regulates the offer and sale of securities, many believe that these statutes apply only to the offerings of large corporations. Small companies, they believe, are exempt from these acts. Unfortunately, this is one of the dangerous misconceptions held by many persons in the position of Deborah and Dave. In fact, these laws (specifically, the federal Securities Act of 1933, the federal Securities Exchange Act of 1934, and states' "Blue Sky" statutes) apply to all issuers and their principals.
Further, even those businesspeople who are aware of the reach of these acts believe that they only apply to ...