Private securities offerings can offer a great funding source for businesses. But businesses need to be aware of the regulations they must comply with for these transactions. There are two key concepts investors and issuers should be familiar with: blue sky laws and Regulation D offerings. Knowing these rules can increase a business's confidence in their approach to fundraising.

What is a "blue sky"? What are the "blue sky laws?

Blue sky laws are state securities laws that prevent investors from being misled and cheated into believing they are offered better investments than they actually are. Federal securities laws impose uniform requirements across the nation, but the states may have their own regulations regarding securities offerings, securities registration, securities exemption, and securities disclosure.

An issuer may be required to make notice filings, pay applicable fees, or meet other state-specific requirements for the offering, depending on the states in which it is made. The obligations can be different for each business, so they must check the legislation that governs their investors and transactions.

Understand and recognize a Reg D offering

Usually, a Reg D offering is an offering of securities made under the federal securities laws pursuant to Regulation D. The SEC has offered a few exemptions in the Regulation D provisions to raise capital without a traditional registered public offering.

Various Regulation D exemptions have various requirements. Some offers, for instance, could allow more general solicitation, and others could limit the advertising of the offer and who can invest. The issuer needs to know which exemption they are using and adhere to the conditions of the exemption.

ReadMore:Understanding Bold Blue Sky Laws Without the Headache

The interplay between State and Federal rules

It is not always the case that federal exemptions will remove state-level compliance requirements. That's the place where blue sky laws come into play. A company might have state notice filing, fee, or obligations even if it meets the federal Regulation D exemption.

This is why businesses should take note of the federal and state requirements, as well as before taking investment. With careful planning, applicable jurisdictions and filing requirements can be identified at an early stage of the fundraising process.

Key Compliance Considerations

There are a number of important areas that businesses should consider before embarking on a private offering:

• Determine which federal exemption applies.

• Find out which states investors are from.

• Review relevant state securities laws.

• Create accurate offering and Investor information.

• Monitor federal and state requirements.

• Keep good compliance records.

• Strengthen the fundraising process.

A well-structured Reg D offering can be an effective method for businesses to raise private capital while complying with relevant securities legislation. But compliance shouldn't be a secondary priority.

Companies can limit their regulatory risks and make their fundraising process more streamlined when they know the ins and outs of blue sky laws, exemptions, investor needs, and filing procedures. Companies should seek qualified legal or compliance counsel prior to proceeding, as securities regulations may be complex and differ based on the offering structure.