Securities Law–a primer

7 09 2011

Every entrepreneur needs to know a little securities law.  Why?  Because when you form your business and want to sell shares to investors, these laws apply to you.  Also, when you form your business and want to invest money in your own company for your own shares, these laws apply to you.

What do you need to know?

1)  Don’t do anything without knowing what you are doing.  To learn what to do, either read a lot about the subject or speak to a lawyer.

2)  The general rule, stated simply, is that the issuance of any securities (most commonly stock) requires registration unless there is an exemption.  Registration is a big and expensive process.  Luckily, there are quite a few exemptions.

3)  If you want to avoid registration (which you want to do if you’re a new company), you need to fit one or more exemptions, both on a Federal level and on a State level.  Some of these require filing forms (such as Form D if you fit one of the Regulation D exemptions on a Federal level), others don’t.  It is very likely that you will need to file a form either on a Federal or a State level, possibly both.

4)  There are deadlines on when you need to file the forms, and they are not long (e.g. 15 days after becoming required to issue the shares).  It is best not to miss these deadlines.

5)  Your company should follow the correct company procedures (e.g. meetings, voting, resolutions) to issue the shares.

6)  None of the exemptions protect you from fraud and disclosure requirements.  You cannot withhold information that an investor might want to know when deciding whether or not to invest in your company.


The Importance of Foundation

22 07 2011

Whether you are dealing with a lawsuit or business negotiations or political debate, it is essential to understand the concept of foundation.  Far too often, people jump to a conclusion without the proper support or evidence (in other words, the “foundation” for that conclusion).

For instance, maybe one person rear ends another.  The person who got rear ended might assume that the other person was sending a text message and not paying attention.  But why would they assume that?  This is absolutely a vital question.  Perhaps they saw the person with a cell phone in hand, perhaps not.  Even with a cell phone in hand, you can’t conclude that the person was sending a text message.  Maybe the person was distracted for other reasons.

Another example would be if you suddenly found your competition using the name of your product on theirs.  You might assume that they are doing so on purpose.  But without some support, that is just an assumption.  Perhaps they are doing it accidentally.  Perhaps not.  But you should always start with what you know for sure and build from there, making note of where you are making assumptions.

The Basic Legal Issues Involved in Marketing Your Product or Service

14 07 2011

When you create a website, video, document, or other material for the purpose of advertising your business, your main goal is to convince potential customers to buy from you. However, you also need to make sure that your advertising materials comply with the law. Some of the things you need to think about are:

What Claims Do You Make In Your Advertisement?

There are two types of claims you need to analyze in order to ensure compliance: Express claims, which are claims you make directly, such as “Our product promotes weight loss,” and implied claims, which are implied by the ad without being stated expressly.  Both types of claims are treated the same – you can’t imply a claim that you could not make directly, and all claims must be truthful, not misleading, and have adequate substantiation.  You must assess the net impression of your advertisement, which includes the text, product names, and depictions of the product or other images in the advertisement.

Do You Omit Important Information?

If your advertisement fails to reveal information which is material in light of your advertisement, it might be misleading. Any qualifying information must be disclosed prominently, and not hidden in fine print, and it must be simply and clearly stated.

Can You Provide Evidence?

You must have a reasonable basis for the claims you make. The amount of evidence you need depends a lot on what you are selling. If your product or service is something that consumers will have a hard time evaluating on their own, you need a high level of substantiation for your claims.  How much substantiation is required depends on many factors, including what level of substantiation is considered reasonable by experts in
your field.  

Testimonials, Endorsements, Books, and Articles

You cannot make claims either through consumer or expert endorsements that would be deceptive or could not be adequately substantiated if made directly, and it is irrelevant that a testimonial represents the honest opinion of the endorser. If you use an expert endorser, it is your responsibility to make sure he/she has appropriate qualifications, make sure he/she has conducted a proper examination of the product, and disclose any connection  between the endorser and the product which might affect credibility. You also can’t use other literature in a way that would be misleading.  If you quote another publication, you may be required to substantiate the claims in that publication if it does not include adequate substantiation.

Need More Information?

More information about the laws related to advertising may be found at: There, you will find helpful information, policy statements, and legal guides regarding advertising in general, as well as rules and information about advertising in specific industries.  Remember that certain regulated industries may have additional advertising rules.