Raising capital from outside investors, whether from “friends and family” or an angel investor, will often trigger the application of federal and state securities laws.  The wise entrepreneur will look to experienced legal counsel for assistance navigating this complicated area of law.  Penalties for violating securities laws are wide-ranging and severe (including criminal penalties), and yet this is an area plagued by widespread ignorance and noncompliance throughout the business community.  Generally speaking, when a business owner raises money from passive investors who are looking to earn a return on their investment from the efforts of someone else (e.g., the business owner), the transaction may very well involve the offer and sale of a security.  Securities offerings fall into one of three catagories:  (i) a registered (i.e., public) offering with the SEC, (ii) an exempt (i.e., private) offering, or (iii) an illegal offering (i.e., an unregistered offering that does not qualify for an exemption from the registration requirements).  For most small business owners, category #2 is where you want to be when you raise debt or equity capital from outside investors.  How you do that is the subject of an upcoming e-book “Structuring a Private Offering Under Regulation D,” but by having a basic understanding of when the securities laws apply and why compliance is so critical, you will be ahead of the game.  Check out other securities compliance articles posted on this site under the “Articles” tab.