Summary. Every time a startup takes money for equity, a SAFE, or a convertible note, it is selling a security, and federal law makes it unlawful to sell a security unless the offering is registered or exempt. Most founders never register, which means every financing depends on an exemption, and exemptions have conditions that are easy to break by accident. This article explains the system: what counts as a security under Howey and Reves, why § 5 imposes strict liability with a rescission remedy, and how the private placement exemptions work. It covers Regulation D in detail, including the difference between Rule 506(b) and Rule 506(c), what general solicitation means and how founders trigger it inadvertently, the accredited investor definition, verification obligations, Form D filing, and bad actor disqualification. It then covers the state blue sky layer and federal preemption, employee equity under Rule 701, the crowdfunding and Regulation A alternatives, resale restrictions, integration, the anti-fraud provisions, and the finder problem. It closes with a compliance checklist, a worked example, an FAQ, and related reading.

A founder raises $600,000 from eighteen people over four months. Most are former colleagues; two are people she met at a conference; one is her dentist. She sends a deck, answers questions over coffee, and closes on a SAFE she downloaded from an accelerator's website. She posts on LinkedIn that the round is "almost full" and thanks her backers.

Eighteen months later the company is doing well, raising a Series A, and the new lead's counsel asks for the prior round's Form D, the accredited investor questionnaires, and the state notice filings. There are none. The LinkedIn post is a general solicitation. The dentist is not accredited.

Nothing bad has happened yet. But the company now has a disclosed rescission exposure, a diligence problem, and a cleanup project, and none of it would have existed if someone had spent two hours on process at the start.

The short answer

Section 5 of the Securities Act, 15 U.S.C. § 77e, makes it unlawful to offer or sell a security in interstate commerce unless a registration statement is in effect or an exemption applies.

A SAFE, a convertible note, common stock, preferred stock, an LLC membership interest sold passively, a revenue share, and most token sales are securities.

Registration is impractical for a startup, so every financing relies on an exemption. The workhorses:

Exemption Cap General solicitation Investors State preemption
§ 4(a)(2) statutory private placement none no sophisticated, able to fend for themselves no
Rule 506(b) none no unlimited accredited; up to 35 sophisticated non-accredited (with disclosure) yes
Rule 506(c) none yes all purchasers must be accredited, and verified yes
Rule 504 $10M / 12 months limited varies no
Reg CF $5M / 12 months limited, through a portal anyone, with investment limits yes
Reg A+ Tier 2 $75M / 12 months yes anyone, with limits for non-accredited yes
Rule 701 formula-based n/a (compensatory) employees, directors, consultants yes

Violating § 5 is strict liability. A purchaser may sue under § 12(a)(1) to rescind the purchase and recover the consideration paid with interest, or damages if the security has been sold. There is no need to prove fraud, reliance, or damages.

Anti-fraud provisions apply to every offering, exempt or not. Section 10(b) and Rule 10b-5, § 17(a), and state analogues do not have exemptions.

Part I: Is it a security?

The Howey test

SEC v. W.J. Howey Co., 328 U.S. 293 (1946), defines an "investment contract" as a transaction involving:

  1. an investment of money,
  2. in a common enterprise,
  3. with a reasonable expectation of profits,
  4. to be derived from the entrepreneurial or managerial efforts of others.

The Court emphasized substance over form: "form should be disregarded for substance and the emphasis should be on economic reality."

Howey reaches far. Orange grove parcels with service contracts, whiskey warehouse receipts, payphone sale-leasebacks, and interests in cattle-breeding programs have all been held to be securities. So have many digital asset offerings, where the SEC has applied Howey extensively and courts have divided over its application to secondary market transactions.

Notes and Reves

Reves v. Ernst & Young, 494 U.S. 56 (1990), applies a "family resemblance" test to notes: a note is presumed to be a security, rebuttable by showing it resembles a category of instruments that are not (consumer financing notes, notes secured by a home mortgage, short-term commercial paper, and similar). The factors are the motivations of buyer and seller, the plan of distribution, the reasonable expectations of the investing public, and the existence of an alternative regulatory scheme reducing risk.

A convertible note issued to investors in a startup financing is a security. So is a SAFE, which is a contractual right to future equity and satisfies Howey comfortably. See SAFEs: An Overview of Simple Agreements for Future Equity.

LLC interests

Membership interests in a manager-managed LLC where investors are passive are generally securities. Interests in a member-managed LLC where every member actively participates may not be, because the profits do not derive from the efforts of others. The analysis is fact-specific and turns on actual control, not on the label in the operating agreement.

Part II: The private placement exemptions

Section 4(a)(2)

The statutory exemption for "transactions by an issuer not involving any public offering." Its scope was defined by SEC v. Ralston Purina Co., 346 U.S. 119 (1953), which held that the applicability turns on "whether the particular class of persons affected needs the protection of the Act." Offerees who "are shown to be able to fend for themselves" do not.

Ralston Purina also rejected a numerical test: the company had offered stock to "key employees," a group of hundreds including a bakeshop foreman and a stock clerk, and the Court found no exemption because those offerees lacked access to the information registration would provide.

Section 4(a)(2) is a facts and circumstances exemption with no bright lines, which is why nearly everyone uses Regulation D instead: Regulation D provides a safe harbor with objective conditions.

Rule 506(b): the default

The most-used exemption in American capital formation. Conditions:

  • No general solicitation or general advertising. Rule 502(c).
  • Unlimited accredited investors.
  • Up to 35 non-accredited purchasers, each of whom must have, alone or with a purchaser representative, "such knowledge and experience in financial and business matters that he is capable of evaluating the merits and risks of the prospective investment." Rule 506(b)(2)(ii).
  • If any non-accredited purchaser participates, the issuer must deliver specified disclosure, which for larger offerings approaches registration-statement quality and includes audited financial statements. Rule 502(b).
  • Resale restrictions and reasonable care to assure purchasers are not underwriters. Rule 502(d).
  • Form D filed within 15 days of first sale. Rule 503.
  • No bad actors. Rule 506(d).

Practical advice: sell only to accredited investors even under Rule 506(b). The disclosure obligation triggered by a single non-accredited purchaser costs more than the money that purchaser brings, and it introduces a source of liability. Many term sheets and investor documents now require this as a condition.

Rule 506(c): advertising permitted, verification required

Added by the JOBS Act, effective 2013. It permits general solicitation and general advertising, on two conditions:

  1. All purchasers must be accredited investors; and
  2. The issuer must take reasonable steps to verify accredited status.

Verification is the operative burden. Rule 506(c)(2)(ii) provides a non-exclusive list of methods for natural persons:

  • Review of IRS forms reporting income for the two most recent years, plus a written representation of reasonable expectation of reaching the income level in the current year;
  • Review of specified documentation of assets and liabilities dated within three months, plus a written representation regarding undisclosed liabilities;
  • Written confirmation from a registered broker-dealer, SEC-registered investment adviser, licensed attorney, or CPA who has taken reasonable steps within the prior three months; or
  • For prior investors in the issuer's Rule 506(b) offerings, a certification of continued accredited status.

The SEC has also taken the position, in staff guidance, that a high minimum investment amount combined with written representations regarding the source of funds and the absence of borrowing can constitute reasonable verification. That approach is useful for institutional and high-minimum rounds and should be implemented with counsel.

A self-certification checkbox is not verification under 506(c). It is sufficient under 506(b), which is one of the main practical differences between them.

Which to choose

Choose 506(b) if you can raise from your existing network, want to avoid verification friction, and can stay quiet publicly. This is the vast majority of venture financings.

Choose 506(c) if you want to market publicly, use a demo day or online platform, post about the raise, or talk to press about it. The verification burden is real but manageable with a service provider.

You cannot fix a 506(b) offering after you have publicly solicited. Rule 152, as revised in the 2020 exempt offering framework amendments, addresses integration and provides a path in some circumstances, but the practical rule for founders is simpler: decide before you talk.

What counts as general solicitation

This is where founders get into trouble, usually without realizing it. Examples that have been treated as general solicitation:

  • Posting about the raise on LinkedIn, X, or Instagram.
  • A press release or press interview about the financing.
  • A public demo day with an open audience.
  • Cold emails to a purchased list.
  • A "we're raising" page on the company website.
  • Speaking about the offering at an open conference session.
  • An online platform accessible without a substantive pre-existing relationship.

The pre-existing substantive relationship concept is the traditional test: solicitation of a person with whom the issuer or its agent had a relationship, established before the offering, sufficient to evaluate the person's sophistication and financial circumstances, is not "general." Building that relationship record is why sophisticated founders keep a CRM of investor conversations with dates.

What is generally safe: talking to people you already know, warm introductions, non-public conversations, and a password-protected data room shared with identified prospects.

The accredited investor definition

Rule 501(a). The categories most relevant to startups:

  • Natural person with individual net worth, or joint net worth with spouse or spousal equivalent, exceeding $1,000,000, excluding the primary residence (and with mortgage debt in excess of the residence's value counted as a liability).
  • Natural person with income exceeding $200,000 in each of the two most recent years, or $300,000 jointly, with a reasonable expectation of the same in the current year.
  • Entities with total assets over $5,000,000 not formed to acquire the securities, and entities in which all equity owners are accredited.
  • Any entity owning investments in excess of $5,000,000 and not formed for the specific purpose of acquiring the securities.
  • Knowledgeable employees of a private fund, with respect to that fund.
  • Holders in good standing of specified professional certifications, currently the Series 7, Series 65, and Series 82 licenses.
  • Family offices with at least $5,000,000 in assets under management and their family clients.
  • Directors, executive officers, and general partners of the issuer.

The 2020 amendments added the professional certification, knowledgeable employee, and family office categories. The thresholds themselves are not indexed to inflation, which has been a persistent subject of legislative proposals.

Form D

An issuer relying on Regulation D must file a Form D with the SEC through EDGAR within 15 calendar days after the first sale. Rule 503.

  • "First sale" means the first time an investor is irrevocably bound, which for a SAFE or note is typically signature and delivery of funds.
  • Amendments are required annually while the offering continues and to correct material errors.
  • Getting EDGAR access takes time. Apply for codes before you need them; companies miss the deadline waiting for credentials.
  • The consequence of not filing is nuanced: Rule 507 disqualifies an issuer from future Regulation D use if enjoined for failing to file, and the filing is a condition in some states, but a late Form D does not itself destroy the federal exemption. It does destroy state preemption in states requiring a notice filing, and it is a diligence red flag forever.

Bad actor disqualification

Rule 506(d) disqualifies an offering from Rule 506 if any covered person has experienced a disqualifying event. Covered persons include the issuer, its predecessors and affiliated issuers, directors, executive officers and other officers participating in the offering, 20 percent beneficial owners, promoters, investment managers, and compensated solicitors.

Disqualifying events include certain criminal convictions, court injunctions and restraining orders, final orders of specified regulators, SEC disciplinary and cease-and-desist orders, suspension or expulsion from a self-regulatory organization, and U.S. Postal Service false representation orders, each within specified lookback periods.

There is a reasonable care exception: the issuer must show it did not know and, in the exercise of reasonable care, could not have known of the disqualification. That means you must actually inquire. The standard practice is a bad actor questionnaire signed by every covered person at each closing, refreshed annually.

Pre-existing events that occurred before the rule's effective date do not disqualify but must be disclosed to investors a reasonable time before sale.

Part III: The state layer

NSMIA preemption

Before 1996, every offering had to clear state "blue sky" review in each state where it was sold, which was expensive and slow.

The National Securities Markets Improvement Act added § 18 to the Securities Act, 15 U.S.C. § 77r, preempting state registration and review for covered securities, which include securities sold under Rule 506 (both (b) and (c)), Regulation A Tier 2, Regulation Crowdfunding, and Rule 701, among others.

What states retain:

  • Notice filings and fees. Most states require a copy of the Form D and a fee, generally within 15 days of first sale in that state.
  • Antifraud authority, which is not preempted and is actively used.
  • Broker-dealer and agent registration requirements.

Rule 504 offerings are not covered securities, so a Rule 504 offering requires compliance with each state's law. That is the principal reason Rule 504 is used far less than its $10 million cap would suggest.

Practical guidance

Track where each investor resides, because the notice filing obligation is triggered by sales in that state. Several service providers file these automatically from your Form D. The fees are small; the cost of missing them is a diligence item and, occasionally, a state enforcement inquiry.

Part IV: Employee equity under Rule 701

Issuing options or shares to employees is an offer and sale of securities. Rule 701 exempts offers and sales under a written compensatory benefit plan or contract by a non-reporting issuer to employees, directors, general partners, trustees, officers, consultants, and advisors (with conditions on consultants: natural persons providing bona fide services not in connection with capital raising or promoting the issuer's securities).

The volume cap. In any consecutive 12-month period, the aggregate sales price or amount of securities sold may not exceed the greatest of:

  • $1,000,000;
  • 15 percent of total assets as of the issuer's most recent balance sheet date; or
  • 15 percent of the outstanding amount of the class of securities being offered.

The disclosure trigger. If the aggregate sales price or amount sold during any consecutive 12-month period exceeds $10,000,000, the issuer must deliver, a reasonable period before sale, a summary of the plan's material terms, risk factors, and specified financial statements not more than 180 days old. The threshold was raised from $5 million by the 2018 Economic Growth, Regulatory Relief, and Consumer Protection Act.

Practical notes:

  • Rule 701 covers the grant of an option as a sale, so the cap is measured at grant using the exercise price.
  • Rule 701 is a federal exemption preempted at the state level as a covered security, but confirm state treatment.
  • California has its own requirements for equity compensation plans, and companies with California employees should confirm compliance with state provisions.
  • Repricing, extending exercise periods, and secondary tender offers to employees each raise their own securities questions and should not be done informally.

See Popular Legal Documents for Startups and Startup Formation Legal Checklist.

Part V: The alternatives

Regulation Crowdfunding

Allows an issuer to raise up to $5,000,000 in a rolling 12-month period through a registered funding portal or broker-dealer. Key features:

  • Investment limits for individual investors based on income and net worth.
  • Form C disclosure, including financial statements whose required level (self-certified, reviewed, or audited) scales with the offering size and whether it is the issuer's first Reg CF offering.
  • Annual reports on Form C-AR while the securities are outstanding.
  • Resale restrictions for one year, with exceptions.
  • Covered securities for blue sky purposes, with notice filings permitted in the issuer's home state.

Reg CF is genuinely useful for consumer-facing companies with a community, and it creates a large, unsophisticated cap table that later institutional investors dislike. Many companies use a special purpose vehicle structure permitted under the rules to keep the cap table clean.

Regulation A

  • Tier 1: up to $20,000,000 in 12 months, subject to state review.
  • Tier 2: up to $75,000,000 in 12 months, preempted from state registration, with audited financials, ongoing reporting (Forms 1-K, 1-SA, 1-U), and investment limits for non-accredited investors.

Regulation A requires an offering statement on Form 1-A qualified by the SEC, which is a real process with real cost. It is a "mini-IPO," appropriate for later-stage companies with retail appeal, not for a seed round.

Intrastate offerings

Rules 147 and 147A provide safe harbors for offerings confined to a single state, with residency and doing-business conditions. They are used mainly in conjunction with state crowdfunding statutes and are impractical for companies with any interstate ambition.

Part VI: Resales, integration, and the after-market

Rule 144

Securities sold in an exempt offering are restricted securities and may not be freely resold. Rule 144 provides a safe harbor:

  • For a non-reporting issuer, a one-year holding period, after which a non-affiliate may resell freely.
  • For a reporting issuer, a six-month holding period, with current public information required until one year.
  • Affiliates face additional conditions at all times: current public information, volume limitations, manner of sale requirements, and Form 144 filing.

Legends should be placed on certificates and reflected in the cap table system, and transfer agent instructions should enforce them.

Secondary sales by founders and early employees have become common and are a frequent compliance gap. A founder selling shares to an investor is engaging in a securities transaction that needs its own exemption, and Section 4(a)(7) or a "4(a)(1½)" analysis is typically the route. Involve counsel; these transactions also raise tax, information rights, and right of first refusal questions.

Integration

If two offerings are "integrated," they are treated as one, which can destroy an exemption (for example, by combining a publicly solicited offering with a Rule 506(b) offering).

The 2020 amendments replaced the old five-factor test with a general principle plus four safe harbors in Rule 152. The general principle: offers and sales will not be integrated if, based on the particular facts and circumstances, the issuer can establish that each offering either complies with the registration requirements or that an exemption is available.

The safe harbors include a 30-day separation rule (with conditions where general solicitation was used), offerings to persons who did not receive general solicitation, offerings under Rule 701 or Regulation S, and completed and terminated offerings followed by certain subsequent offerings.

Practical translation: keep a written record of when each offering started and ended, who was solicited how, and why the offerings are separate. That record is what your next lead investor's counsel will ask for.

The finder problem

This traps more startups than any other issue in this article.

A person who receives transaction-based compensation for introducing investors is likely acting as an unregistered broker, in violation of § 15(a) of the Exchange Act. There is no general "finder" exemption at the federal level. The SEC proposed a limited finder exemption in 2020; it was not adopted. Some states have adopted limited finder registration or exemption regimes.

Consequences:

  • The finder may face SEC enforcement and state action.
  • The issuer may face liability for aiding the violation.
  • In several states, and under § 29(b) of the Exchange Act, investors who purchased through an unregistered broker may have rescission rights, which converts a fundraising cost into a balance sheet liability.
  • It is a diligence disclosure item in every subsequent financing and in an acquisition.

Safe practice: pay for introductions with a flat fee unrelated to whether or how much capital is raised, or engage a registered broker-dealer, or do not pay at all. Advisory shares granted for general advisory services present a fact question and should be documented as compensation for services other than capital raising.

Part VII: Anti-fraud applies to everything

No exemption exempts anyone from the anti-fraud provisions:

  • § 10(b) and Rule 10b-5: unlawful to make an untrue statement of material fact or omit a material fact necessary to make statements not misleading, in connection with the purchase or sale of any security, with scienter.
  • § 17(a) of the Securities Act: similar, in the offer or sale, with a negligence standard for subsections (a)(2) and (a)(3).
  • § 12(a)(2): liability for material misstatements in a prospectus or oral communication, though the Supreme Court has limited it in the private placement context.
  • State antifraud statutes, which are not preempted.

Practical implications for founders:

  • Your deck is a securities offering document. So are your investor updates, your data room, and your emails.
  • Projections must be labeled as such and must have a reasonable basis.
  • Material risks must be disclosed, even in a "friendly" round.
  • Do not tell different investors different things about the same facts.
  • Keep the deck versions you sent, and to whom.
  • Update investors on materially adverse developments before closing.

The SEC has brought numerous actions against private companies for misstatements to private investors, and the plaintiffs' bar pursues them as well. The exemption gets you out of registration; it does not get you out of telling the truth.

Compliance checklist

Before you take the first dollar

  • Decide 506(b) or 506(c) and write the decision down.
  • If 506(b), instruct everyone on the team: no public statements about the raise.
  • Build an investor log with dates of first contact and the nature of the relationship.
  • Prepare an accredited investor questionnaire (506(b)) or a verification process (506(c)).
  • Prepare a bad actor questionnaire for all covered persons.
  • Confirm entity good standing and cap table accuracy.
  • Obtain EDGAR access codes.
  • Confirm no finder is being paid transaction-based compensation.

At each closing

  • Collect signed subscription documents and accreditation evidence.
  • Refresh bad actor certifications.
  • Record the closing date and the investor's state of residence.
  • Place restrictive legends and update the cap table.

Within 15 days of first sale

  • File Form D on EDGAR.
  • File state notice filings where investors reside.

Ongoing

  • Amend Form D annually while the offering continues, and for material changes.
  • Track Rule 701 volume against the cap.
  • Retain all offering materials, versions, and distribution records.
  • Send consistent, accurate investor updates.
  • Review before any secondary transaction, repricing, or tender.

A worked example

Halyard Marine Systems, Inc. (fictional) is raising a $2.5 million seed round. The founders plan to speak at a startup conference, post about the raise, and take money from 22 angels including three who are not accredited.

The advice:

1. You cannot do all of that under one exemption. Public speaking about the offering and social posts are general solicitation, which forecloses Rule 506(b). Rule 506(c) permits the solicitation but requires that every purchaser be accredited and verified, which excludes the three non-accredited angels.

2. Pick one. Either:

  • 506(b): stay quiet, take the three non-accredited investors only if you are prepared to deliver Rule 502(b) disclosure (usually not worth it, so exclude them), and rely on your network; or
  • 506(c): speak and post freely, and verify every investor, excluding the three non-accredited angels regardless.

Halyard chooses 506(c), because the conference visibility is worth more than the three checks.

3. Verification process. Halyard engages a third-party verification service, which issues a letter for each investor. For two institutional investors, entity accreditation is established by documentation of assets. For one investor who objects to sharing tax returns, Halyard uses the CPA letter route.

4. The advisor problem. An advisor offers to introduce Halyard to five family offices for 3 percent of what they invest. Decline. That is transaction-based compensation for effecting securities transactions. Halyard instead grants the advisor a small equity award for general advisory services under its equity plan, documented as such, with no reference to fundraising.

5. Form D. Filed 11 days after the first closing. Notice filings made in the six states where investors reside.

6. The deck. Halyard's deck includes a five-year projection showing $80 million in revenue. Counsel adds a forward-looking statements disclaimer, and the founders revise the model to state the key assumptions. They also add a risk factors page covering the single-customer concentration that the deck previously omitted, because that omission is the kind of thing that becomes a Rule 10b-5 claim when the customer leaves.

7. Rule 701. Halyard grants options to 14 employees. At the current 409A valuation, the aggregate exercise price is well under the greatest of the three Rule 701 caps, so no additional disclosure is triggered. Counsel calendars a check before the next grant tranche.

Total incremental cost of doing this correctly: a few thousand dollars in verification fees, a few hours of counsel time, and one uncomfortable conversation with the advisor. Total cost of doing it incorrectly: a rescission exposure that must be disclosed in every subsequent round, and a Series A diligence process that takes an extra month.

Frequently asked questions

Is a SAFE a security? Yes. So is a convertible note, and so is common stock issued to a friend. If money comes in expecting a return from your efforts, assume it is a security.

Can I raise money from friends and family without a lawyer? You can, and people do. The exposure is that each of them holds a rescission right if you got § 5 wrong, which means an investment can become a demand note payable on their timing rather than yours. The cost of doing it properly at seed stage is modest.

What happens if I already posted about my round on LinkedIn? You have likely engaged in general solicitation. Depending on timing and what has closed, you may be able to proceed under Rule 506(c) with verification, or rely on the integration safe harbors for a separated subsequent offering. Get advice quickly; the options narrow as sales close.

How do I know whether an investor is accredited? Under 506(b), a signed questionnaire with a reasonable belief standard is generally sufficient. Under 506(c), you must take reasonable steps to verify, using documentation, a third-party letter, or another method in the rule. A checkbox is not verification.

Do I have to file Form D? Yes, within 15 days of the first sale, if you are relying on Regulation D. It is a short form, it is public, and failing to file is a lasting diligence problem and can cost you state preemption.

Is the Form D public? Will it tell competitors what we raised? Yes, it is public on EDGAR, and it discloses the offering amount, amount sold, and number of investors. Some issuers manage this by filing accurately but without additional detail. Do not fail to file for competitive reasons.

Can I pay someone a percentage for introducing investors? Almost certainly not without them being a registered broker-dealer. This is the single most common serious violation among early-stage companies, and it can create rescission rights for the investors introduced.

Does compliance differ for a token or digital asset offering? The Howey analysis governs, and the SEC has applied it extensively to digital asset offerings, with courts differing on aspects of its application, particularly to secondary market sales. Any token offering requires specialist counsel. See Regulation of Cryptocurrency Around the World.

What is the statute of limitations on a § 12(a)(1) claim? One year after the violation, and in no event more than three years after the security was bona fide offered to the public. § 13. That is short, which is one reason cleanup is often possible.

We discovered a problem. What now? Do not ignore it. Options include a rescission offer, corrective disclosure in the next round, and, occasionally, self-reporting. The right response depends on the size of the problem, the time elapsed, and the state law involved. All of them are better than discovering it during acquisition diligence.

Closing thought

Securities compliance at the startup stage is unusual among legal obligations because it is almost entirely front-loaded and almost entirely cheap. The hard parts, deciding whether to advertise, keeping a record of who you talked to and when, collecting a questionnaire, filing a two-page form, and not paying a percentage to a finder, are process, not judgment.

The expensive part comes later, when a company that skipped the process has to explain it to a lead investor's counsel, or to an acquirer's, or to a state regulator responding to a disgruntled early investor. At that point the fix involves rescission offers, indemnity escrows, and a founder spending three weeks reconstructing an investor log from memory.

Do the two hours. Then spend the rest of your time on the business, which is the only thing that will make the securities any good.

Related articles

This article is provided for general informational purposes and does not constitute legal advice. Securities exemptions have technical conditions and state requirements vary. Consult qualified securities counsel before conducting any offering.