Private Companies and the SEC

Does the SEC regulate private companies?

A business can raise capital in a number of different ways, including by selling investment instruments called securities. The U.S. Securities and Exchange Commission, or SEC, regulates the offer and sale of all securities, including those offered and sold by private companies. Under the federal securities laws, every offer and sale of securities, even if to just one person, must be either registered with the SEC or conducted under an exemption from registration. This is true for companies of all sizes, private and public alike, and includes sales made to anyone, including friends, family, angel investors, and venture capital funds. 

What is a security?

Federal securities laws broadly define the term “security,” capturing many different forms of investment interests. Some types of securities that startups often issue include:

• Stock
• Membership Interest
• Stock Option
• Restricted Stock
• Convertible Instruments
• Debt

Some other early-stage capital raising options may not involve a security, such as:

• Federal Grants
• Donations (no expectation of return)
• Reward or Pre-purchase of Product

How do I know if I’m engaging in an offer of securities?

Federal securities laws broadly define, and the Commission has broadly interpreted, what constitutes an offer of securities. The Commission has stated that the publication of information and publicity efforts made before a proposed financing that conditions the public mind or arouses public interest in the company or its securities is an offer. For example, depending on context, any of the following could be considered an offer of securities:

• Calling a friend to discuss your company’s fundraising
• Social media post about the company and specific investment opportunities
• Statements made by the CEO about a future capital raise during an interview about the company

Did you know?

A company’s regular release of ordinary factual business communications is generally not considered an offer of securities.

What do I need to know about a sale of securities?

After you start your offering, there are additional requirements that are triggered at or before a sale of securities, so it is important to understand when a sale may occur. A sale includes any contract of sale or disposition of a security or interest in a security, for value.

What is the SEC?

The SEC is an independent federal agency headed by a five-member Commission. The SEC’s mission is:

• to protect investors
• to maintain fair, orderly and efficient markets and
• to facilitate capital formation

Learn more about how the SEC executes its mission.

This resource represents the views of the staff of the Office of the Advocate for Small Business Capital Formation. It is not a rule, regulation, or statement of the Securities and Exchange Commission (“Commission”). The Commission has neither approved nor disapproved its content. This resource, like all staff statements, has no legal force or effect: it does not alter or amend applicable law, and it creates no new or additional obligations for any person. This resource does not provide legal advice. This resource was produced and disseminated at U.S. taxpayer expense.

Have suggestions on additional educational resources? Email smallbusiness@sec.gov.