An Introduction to Securities Law

An Introduction to Securities Law


In business, a security is something issued by a business entity, generally being an interest in or an obligation of that business entity. Typical examples include corporate stock, interests in a limited partnership, and corporate bonds and debentures. The definition of a security is considerably broad, and can range even to simple activities which are technically offers of securities. Due to the high complexity of securities regulations, difference in state and federal laws, and penalties and liability for non-compliance, seeking advice from knowledgeable securities counsel, prior to soliciting any investment in your business, is highly advisable.

Strict securities laws exist on the federal and state levels to protect investors. In Minnesota, generally securities must be registered with both the federal Securities and Exchange Commission and the Minnesota Department of Commerce before they can legally be advertised or sold to investors. Interstate offerings may also require registration of the securities in other states. Despite the general requirement of registration, there are many cases in which securities may be exempt from registration. These exemptions are spelled out in federal and state laws.

Among federal exemptions are crowdfunding exemptions, small offering exemptions, and private placement/limited offering exemptions. There is also a federal intrastate exemption if an issue of securities is local in nature, requiring that the issue be offered in one state,  that the issuer has its principal place of business in the state, and that the issuer be a resident of the state or a corporation which is incorporated in that state.

State securities laws are typically referred to as Blue Sky Laws (nationally – not just in the ‘land of sky blue waters’). Since 2007, Minnesota has used a version of the Uniform Securities Act called the Minnesota Uniform Securities Act. Minnesota is termed a disclosure-only state, in which the Minnesota Department of Commerce generally cannot prohibit an issuer from selling securities in Minnesota if the issuer satisfies the information disclosure requirements of the Minnesota Uniform Securities Act. Exemptions under Minnesota law include those for isolated sales/limited offerings and the SCOR (Small Corporate Offering Registration). SCOR is a procedure that allows for simplified registration of stock offerings, geared towards smaller start-up companies. Similar to a federal intrastate exemption, SCOR allows for an offering to be registered only at the state level, and a SCOR offering uses a simplified application process with one disclosure form.

Securities laws are highly complex. It is best to seek legal counsel before offering securities to ensure that the process is undertaken legally and effectively.