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Federal and California Securities Considerations

Inherent to both federal and state securities laws is liability for material misrepresentations or omissions of facts, and requiring that offers and sales of securities be “fair, just, and equitable.”

The Federal Government began regulating securities with the Securities act of 1933, followed by the Securities Exchange Act of 1934 and the Investment Company Act of 1940. These laws regulate the licensing of securities professionals and require issuers of securities to file detailed registration statements, forms of prospectus and offering circulars, advertising, and notices of intent to sell securities.

The California Corporate Securities Law of 1968 regulates any offer or sale of a security in California by requiring either qualification of the security with the Commissioner of Corporations or exemption from the requirement of qualification under a specific Rule of the Commissioner or section of law.

Based upon these requirements, it is of the utmost importance for all business owners to consider both federal and state “Blue Sky” securities laws and regulations when issuing securities. Keep in mind that securities laws may apply to any business entity, regardless of how small.

San Diego Corporate Law strongly suggests that any business owner starting a business or contemplating the sale of note, stock, membership interest, bond, debenture, evidence of indebtedness, certificate of interest, profit-sharing agreement, collateral trust certificate, pre-organization certificate or subscription, transferable share, viatical settlement contract, life settlement contract, investment contract, voting trust certificate, certificate of deposit, or any interest or investment instrument, or derivate thereof, seek the advice and counsel of an attorney before selling or offering for sale any financial instrument.

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