Can I get a paid employee to help me sell shares of my private company?

Question from Xxyyzz, Can I get a paid employee to help me sell shares of my private company?

Answer from AI:

Yes, you can get a paid employee to help you sell shares of your private company in the USA, but there are several important legal considerations to keep in mind. The sale of shares in a private company is regulated by federal and state securities laws, and you must ensure compliance with these regulations to avoid legal issues.

Understanding Securities Laws

The sale of shares is governed by the Securities Act of 1933 and the Securities Exchange Act of 1934. These laws are designed to protect investors by ensuring that they have access to essential information about the securities being offered.

Key Considerations

• Registration Requirements: Generally, any offer or sale of securities must be registered with the Securities and Exchange Commission (SEC) unless an exemption applies. Private companies often rely on exemptions such as Regulation D, which allows for the sale of securities without registration under certain conditions.
• Exemptions: Common exemptions include Rule 506(b) and Rule 506(c) of Regulation D. Rule 506(b) allows for the sale of securities to an unlimited number of accredited investors and up to 35 non-accredited investors, provided certain information requirements are met. Rule 506(c) allows for general solicitation and advertising, but all purchasers must be accredited investors.
• State Blue Sky Laws: In addition to federal laws, each state has its own securities laws, known as Blue Sky Laws. These laws may require additional filings or impose other requirements on the sale of securities within the state.

Role of Employees in Selling Shares

If you plan to have a paid employee assist in selling shares, you need to consider the following:

1. Broker-Dealer Registration: Under the Securities Exchange Act of 1934, individuals who are engaged in the business of buying and selling securities on behalf of others must register as broker-dealers with the SEC and become members of the Financial Industry Regulatory Authority (FINRA). However, there are certain exemptions for employees of the company.
2. Issuer Exemption: Employees of the company may be exempt from broker-dealer registration if they are not receiving transaction-based compensation and their activities are limited to certain permissible activities, such as providing information about the company and its securities.
3. Compensation Structure: If the employee is compensated based on the success of the sale (e.g., commissions), this could trigger broker-dealer registration requirements. It is crucial to structure compensation in a way that complies with securities laws.

Steps to Take

To ensure compliance with securities laws when having an employee help sell shares, consider the following steps:

1. Consult with a securities attorney to understand the specific requirements and exemptions that apply to your situation.
2. Determine whether the sale of shares qualifies for an exemption from registration under federal and state laws.
3. Ensure that any employees involved in the sale are not engaging in activities that would require broker-dealer registration.
4. Provide adequate disclosure to potential investors, including financial statements and risk factors associated with the investment.
5. File any necessary forms with the SEC and state securities regulators, if applicable.

When to Seek Legal Advice

Given the complexity of securities laws and the potential for significant penalties for non-compliance, it is highly recommended to seek legal advice from a qualified securities attorney. They can provide personalized guidance based on your specific circumstances and help ensure that you comply with all relevant regulations.

For more information, you can refer to the [SEC’s guide on small business capital raising](https://www.sec.gov/smallbusiness) and the [FINRA website](https://www.finra.org/).

Remember, this information is intended to provide a general overview and should not be considered legal advice. Always consult with a legal professional for advice tailored to your specific situation.