PLG Law Blog

Securities for Companies

Did you know that when you sell stock or membership interests in your company, you have created and sold a security? Did you know that when you borrow money from friends in exchange for a promissory note from your company you have created and sold a security? Did you know that before a security can be sold it must be registered with the Securities and Exchange Commission? Failure to properly register a security can lead to crippling, sometimes business ending, penalties and sanctions.

Did you know that while there are exceptions to the registration requirement the anti-fraud provisions of the securities laws still apply? This means even if you don’t have to register you have disclosure concerns. Failure to properly disclose can lead to securities fraud charges against the company and the applicable officers/directors. There are both federal and state laws governing the sale of securities.

Did you know that for a private equity fund manager to take a “performance fee” all of the investors in the fund must be “Qualified Clients” rather than “Accredited Investors”?


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1.Treasury Regulation 1.401(a)(9)-3, Q&A 4(a)(2)
2.Treasury Regulation 1.401(a)(9)-3, Q&A 4(a)(1)
3.Treasury Regulation 1.401(a)(9)-4, Q&A 5(b)
4.Treasury Regulation 1.401(a)(9)-8, A-3
5.Private Letter Ruling 200537044
6.Note: Private Letter Rulings from the IRS are opinions of the IRS on the specific facts for which rulings are requested and are not binding precedence upon the IRS.

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