Financing in the United States can take different forms. The most common are personal assets, private loans, commercial bank borrowings and equity or debt offerings. Personal assets are limited. Not everybody has connections to high-net-worth individuals, wealthy friends and family members to get private loans. Bank commercial borrowings may not satisfy all financial needs for several reasons – may be hard or impossible to obtain for some companies, especially start-ups, high annual percentage rates, have to pay back, limited amount is available. Accordingly, the companies may choose to seek capital in public markets or private transactions by offering the participation in the company’s future profits to proposed investors.
The laws governing private or public offerings of the company’s interest (known as securities offerings), are extensive and require strict compliance, including registration with various regulatory organizations. Securities transactions are subject to regulation under both federal and state laws.
All securities offerings in the United States must either be registered with the Securities and Exchange Commission (SEC) or completed in compliance with an exemption from the registration requirements and applicable state securities laws. Failure to comply with these requirements exposes the issuer and its officers and directors to potential civil and criminal liability.
Because of the cost and time required to complete a registered “public offering” of securities, many securities offerings are completed as “private placements” pursuant to an exemption from registration. Private placement is an offering of securities for sale to a limited number of sophisticated investors. Several exemptions are available, but it is essential that the issuer consult with an attorney who specializes in securities matters before offering or selling securities in the United States.
In addition to satisfying the registration requirements, issuers planning to offer securities in the United States must also comply with the disclosure and anti-fraud provisions of the federal and state securities laws. In general, these laws impose liability both for misstatements and omissions of material facts in connection with a securities offering. The liability extends to the issuer, its officers, directors and other parties involved.
Companies that complete a registered public offering of securities or that list shares for trading in the United States, become subject to the periodic reporting requirements of the federal securities laws.
State securities laws, commonly known as “blue sky” laws, co-exist and regulate various securities transactions simultaneously with the federal laws. Although states continue to seek greater uniformity in these “blue sky” laws, state security laws are still characterized by great diversity of language and interpretation. It is very important to know precisely applicable state laws before taking any actions, which involve securities.
The facilities through which securities are traded are known as “markets”. The biggest American securities markets, The New York Stock Exchange, the American Stock Exchange, and NASDAQ, have their own rules and regulations concerning operating and listing standards. If a company or any other market participant wants to work through these markets, they have to confirm the current requirements and abide by them.