The California Corporate Securities Law of 1968 – What is it Anyway?
The California Corporate Securities Law of 1968 (“Securities Law”) became effective on January 2, 1969 Marc Levin, California Corporate Securities Law of 1968: The Issue of the Nonissuer, 2 Loy. L.A. L. Rev. 87 (1969) and regulates all offers and sales of securities in California. Unlike the Federal Securities Act of 1933 and the Securities Exchange Act of 1934, the Securities Law regulates offers and sales from both issuers and secondary sellers of securities within California and is intended to protect California consumers from “fraud and deception in transactions involving securities.” About the Corporate Securities Law of 1968, California Department of Business Oversight (2015).
To accomplish its goal, the Securities Law requires that all sales of securities in California must either be registered with the California Department of Business Oversight, or exempted from registration pursuant to one of the specific exemptions listed in California Corporations Code Section 25102. The exemptions from registration contained in the statue include, among the most common:
- “Any offer (but not a sale) not involving any public offering and the execution and delivery of any agreement for the sale of securities pursuant to the offer (1)” containing a specified legend or, “(2) no part of the purchase price is paid or received and none of the securities are issued until the sale of the securities is qualified under this law unless the sale of securities is exempt from the qualification by this section, Section 25100, or 25105.” Corporations Code Section 25102(a).
- An offer “(but not a sale)” of a security registered under the Securities Act of 1933. Corporations Code Section 25102(b).
- “Any offer or sale of any evidence of indebtedness, whether secured or unsecured, and any guarantee thereof, in a transaction not involving any public offering.” Corporations Code Section 25102(e).
- “Any offer or sale of any security in a transaction (other than an offer or sale to a pension or profit-sharing trust of the issuer) that meets each of the following criteria:” (1) the sale is not made to more than 35 persons; (2) the purchasers have a preexisting business or personal relationship with the offeror or “its partners, officers, directors, controlling persons or managers;” (3) or “by reason of their business or financial experience or the business or financial experience of their professional advisers” have the capacity to protect their interests, and that the purchaser is purchasing the security on their own behalf and does not intend to resell those securities; and, (4) finally, no publication of any advertisement occurred. California Corporations Code Section 25102(f).
The effect of the Security Law is that, for the most part, any entrepreneur in California that decides to incorporate a business where the corporation will issue stock in California, that issuance must either be registered or exempted pursuant to California Corporations Code Section 25102. Whether the Securities Law of California or the federal laws applicable to the issuance of “securities” applies to your situation, as well as what steps you need to take to ensure your compliance with the law, should be discussed with an experienced attorney.
To understand the provisions of the securities laws and how they may or may not apply to your situation, you need to contact a “Rising Star” in San Diego. Michael Leonard, Esq. of San Diego Corporate Law. To schedule a consultation with Mr. Leonard to discuss how the California Corporate Securities Law of 1968, the Federal Securities Act of 1933 or the Securities Exchange Act of 1934 may apply to you or to discuss or any business-related matter, you can contact him by e-mail or by telephone at (858) 483-9200.