I can’t count how many times I have been talking to a client about a business venture, and I stop them in the middle of their explanation and say, “You just issued securities.” I get a blank stare looking back at me. Then I say, “Securities is one thing you do not want to get wrong as a business owner. You can go to prison for securities fraud if you get it wrong. The consequences are bad – very, very bad.”
Then I get a panicked stare looking back at me, and we proceed to clean up what could have been an awful mess that would cut straight through the “limited liability” protection of their business entity. Federal securities regulators (primarily the Securities Exchange Commission (SEC)) and state securities regulators do not mess around, and they love to nail companies for securities issues (see SEC Sues Cannabis Players for $25 Million Offering Fraud).
I am sorry for doing this to you at the outset, but I need to start with a really long definition. It’s important. I promise. It could keep you out of jail. You need to know what a “security” is, especially if you are a cannabis