Raising Capital for Florida Start-Ups: A Primer on Federal and Florida Securities Laws

Florida start-ups must carefully comply with federal and state securities laws when raising money from investors. The sale of stock, membership interests, convertible notes, partnership interests, or similar investments may be considered a securities offering, even when the amount involved is small or the investors are friends, relatives, or business contacts.

A start-up generally must either register the offering or qualify for a recognized exemption. Common exemptions may allow a company to raise capital without completing a full public registration, but each option has specific requirements involving investor eligibility, advertising, disclosures, filing obligations, fundraising limits, and restrictions on the resale of securities.

Private offerings under Regulation D are frequently used by start-ups. Some offerings may be limited to accredited investors, while others may permit a broader group of purchasers if the company provides the required financial and business disclosures. Companies that publicly advertise an offering may also be required to verify that participating investors meet accredited-investor standards.

Florida businesses must also consider state securities requirements. Depending on the structure of the transaction, a company may need to submit notices, pay filing fees, provide detailed disclosures, use a registered intermediary, or limit the offering to Florida residents. Florida law also provides certain exemptions designed for smaller local offerings, but those exemptions include conditions that must be followed carefully.

Crowdfunding may provide another way to reach investors, but it is subject to fundraising limits, investor protections, disclosure requirements, and the use of an approved online intermediary. Other alternatives may include limited offerings, intrastate offerings, Regulation A offerings, and transactions involving investors outside the United States.

Regardless of the exemption used, companies must provide accurate and complete information about the business, its finances, management, risks, and intended use of investor funds. Misleading statements, omitted information, or failure to comply with filing requirements may result in investor claims, regulatory penalties, rescission of the investment, or personal liability for founders and managers.

Florida entrepreneurs should therefore address securities-law compliance before requesting or accepting investment funds. Selecting the appropriate exemption and preparing the necessary documentation can help protect the company and reduce problems during future financing, expansion, or acquisition transactions. For more information, click here.