Christopher Branson
Updated: July 30, 2018
How To
Move your business to Maine
By Christopher B. Branson
You have been dreaming about moving your business to Maine and have been talking with potential investors about the funds to make the move possible. One potential investor offers to lend you the money to be paid back over five years. Another offers to provide working capital in return for 50% ownership of your business. This is America, the land of free enterprise — you can accept these offers if you want to, right? Um, not so fast.
When your business accepts money from an investor, you need to understand and comply with state and federal securities laws.
When is someone an ‘investor’?
In general, an investor is anyone who provides money to be used in your business. This is true whether it’s a loan or an ownership stake.
What is the legal consequence of having an investor?
Before you or your business accept money from an investor, you need to comply with state and federal securities laws. State and federal securities laws are triggered, and automatically apply, whenever someone invests in that business, either through a loan or in return for an ownership stake in the business. Note that in order to comply with these laws, you need to take action before you accept the money. If you wait until after you accept the money, you are too late and may have violated the laws.
What are the purposes of securities laws and who do they protect?
One purpose of securities laws is to protect investors from bad investments. The laws do this by requiring that the business owners provide relevant information about the business to potential investors so that they can make an informed decision whether to invest. The securities laws also are designed to ensure that businesses do not take investments from people who cannot afford to lose their money.
Does the amount of the investment matter?
Yes and no. Securities laws apply to any investment, no matter how small, and require that the business provide information to investors before they make their decision to invest. The larger the investment, the greater the scope of disclosure requirements.
You say there are both state and federal securities laws? How do I know which ones apply?
The answer depends upon where your business is located and where your investors live. In most cases, you will need to comply both with federal securities laws, and with the securities laws for the states where your business is located and where your investors live.
What do I need to do to comply with securities laws?
The requirements vary depending upon a number of factors, but generally speaking compliance with securities laws is accomplished in three ways:
- The business must provide written financial information to the potential investors.
- The business must ensure that the investor can afford to lose his or her investment.
- Legal forms need to be filed with the applicable state or federal agencies together with any filing fees.
What are the consequences if I fail to comply with securities laws?
The penalties for failure to comply with securities laws can be severe. In most cases, failure to comply will mean that the owners or managers of the business will become personally liable for returning those funds to the investor, particularly if the business fails or is unable to repay those funds. In circumstances where the failure to comply with securities laws was intentional, or where inaccurate or incomplete information was provided, criminal sanctions can be imposed.
How can I learn more about securities laws and how to comply with them?
A qualified attorney can help you understand and comply with securities laws. The SEC website has some good resources on federal securities at law www.sec.gov/info/smallbus/qasbsec.htm. Maine has good online resources at www.maine.gov/pfr/securities/small_business/index.htm.
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