What Are the Federal Securities Laws?

In the chaotic securities markets of the 1920s, companies often sold stocks and bonds on the basis of glittering promises of fantastic profits - without disclosing any meaningful information to investors. These conditions contributed to the disastrous Stock Market Crash of 1929. In response, the U.S. Congress enacted the federal securities laws and created the Securities and Exchange Commission (SEC) to administer them.

There are two primary sets of federal laws that come into play when a company wants to offer and sell its securities to the public. They are:

• the Securities Act of 1933 (Securities Act), and
• the Securities Exchange Act of 1934 (Exchange Act).

Securities Act

The Securities Act generally requires companies to give investors "full disclosure" of all "material facts," the facts investors would find important in making an investment decision. This Act also requires companies to file a registration statement with the SEC that includes information for investors. The SEC does not evaluate the merits of offerings, or determine if the securities offered are "good" investments. The SEC staff reviews registration statements and declares them "effective" if companies satisfy our disclosure rules. We describe this process in more detail beginning on page 7.

Exchange Act

The Exchange Act requires publicly held companies to disclose information continually about their business operations, financial conditions, and managements. These companies, and in many cases their officers, directors and significant shareholders, must file periodic reports or other disclosure documents with the SEC. In some cases, the company must deliver the information directly to investors. We discuss these obligations more fully beginning on page 11.

Exemptions

Your company may be exempt from these registration and reporting requirements. We discuss exemptions beginning on page 16.

II. How Can I Get Answers to My Questions?

The SEC tries to meet the needs of small business through its rules and regulations. It also offers informal guidance by answering your questions over the phone, through the mail or by e-mail. The SEC offers you a number of ways to express your views and get help from the staff. Of course, you should always retain competent counsel before engaging in any securities offering.

Special Ombudsman to Serve You

In 1996, we appointed a Special Ombudsman for Small Business to serve you and to represent the concerns of smaller companies within the SEC. You can tell the Ombudsman your concerns about any SEC proposal or rule. The Ombudsman also can answer your general questions or help you find the answers to your specific questions. The Ombudsman's telephone number is (202) 942-2950.

The Office of Small Business

The Division of Corporation Finance's Office of Small Business directs the SEC's small business rulemaking initiatives and comments on SEC rule proposals affecting small companies. Its staff works with Congressional committees, government agencies, and other groups concerned with small business. The Office also specializes in the review of filings from small companies. Its telephone number is (202) 942-2950.

Town Hall Meetings

The Office of Small Business also sponsors small business town hall meetings across the country. These meetings help the SEC convey basic information to small businesses and learn more about the problems small businesses face in raising capital. These meetings help the SEC design programs that meet small businesses' needs while protecting investors.