The Securities and Exchange Commission (“SEC”) is a federal regulatory agency in charge of, amongst other things, securities. Broadly defined, securities includes: “any note, stock, treasury stock, security future, bond, denture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement … investment contract” … and so on (15 U.S.C § 77b).
The definition then continues on for an entire paragraph listing over 20 different “scenarios” that constitute a security. While what the definition of what is considered a security is a topic for another article, a security is generally anything that a person or entity gives to another, without actively being involved in the control of operations, while expecting a return. This pretty much encompasses most types of investment that a business may receive in starting their operations.
Businesses that receive these types of investments are typically required to register the security offering (the offering of the investment opportunity) with the SEC. The registration process can be complicated and expensive to the point of being cost prohibitive for many small businesses. It is because of this that the SEC has set out several exemptions where smaller or more limited investment offerings do not require such complicated filings.