Tuesday, November 29, 2016

What is a Blue Sky Law?

Blue Sky law is a law of-a-kind passed by various states to protect investors against Securities fraud. These laws require sellers of new stock issues or mutual funds or REITs to register their offerings and provide financial details on each issue so that investors can base their judgments on relevant data. The term is said to have originated with the judge who asserted that a particular stock offering had as much value as a patch of blue sky.

In addition to the Securities and Exchange Commission rules, regulations and laws; States add additional requirements for securities and investments into certain types of obligations, notes, bonds, stocks, membership units, etc.   These Securities laws from the states are referred to as Blue Sky laws. For an entrepreneur, startup or business looking to issue securities the management must make sure that they comply with all federal laws as well as the States laws in the US; also known as Blue Sky laws.

In today's fast moving venture capital and entrepreneurial environment understanding that there is a complex web of laws pertaining to most corporate funding activities is critical to not incurring unnecessary liabilities to the firm's holders.  This may mean that a startup or business seeking to issue a private placement memorandum or bond offering would be better suited to keep the offering circular within a particular state.  With the rise of crowdfunding, social media marketing and communication in today's Internet era this seems to be almost counter productive.  While seeking to sell equity, membership units, partnership units and similar investments all over the Country at once (perhaps online) it is wise to get a legal team together that makes sure you comply with all facets of Blue Sky laws. 

Hope this was helpful,

-Nick Coriano

About the Author: Nicholas Coriano is a Business Consultant.  He is a graduate of The University of Connecticut Business School and the John Marshall Law School in Chicago.  He has worked at Merrill Lynch, The New York Stock Exchange and is currently a partner at Cervitude Intelligent Relations, which specializes in Investor Relations for companies valued under $1 Billion USD.

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