What are Blue Sky Laws?

The Colorado Blue Sky Laws are a set of regulatory laws. They govern the sale of securities and investment in Colorado. The term comes from the phrase “blue skies,” meaning “honest and open.”

The US Securities Act of 1933; one of the first blue sky laws enacted by Congress to protect investors from fraud and misrepresentation. It requires all companies issuing securities to register with the SEC before they can sell them publicly. These laws were put in place to protect investors after the stock market crash of 1929.

Colorado has its own Blue Sky Laws modeled on the US Securities Act. C R.S. 11-51-101 through 11-51-1008. These laws regulate the sale of securities in Colorado.

What’s the Purpose of Blue Sky Laws?

Blue Sky Laws protect investors by preventing frauds and scams. Also, they regulate how securities are offered to the public, how they are bought and sold, and how they will be regulated in the future. As a result, they ensure the public has fair access to information about securities investments; and not misled or deceived by fraudulent or misleading promotional materials.

Do they apply to me and my business?

If your business is considering selling company stocks or LLC membership interests to raise money for your business, you’ll want to look over federal AND Colorado securities laws. Moreover, you’ll need to abide by these laws if you do offer securities to the public.

Fortunately, there are several “safe harbors” and exemptions which may apply to your particular situations. That is to say, the exemption a small business chooses depends on the amount of capital it wants to raise, whether it wishes to avoid state registration, and whether it can raise money from accredited investors. An accredited investor is someone who’s net worth is over $1 million.

Failure to meet the requirements of the federal and state laws on securities could lead to penalties and fines.

In short, before you start selling shares or interests of your business, seek help from an attorney. There’s seven ways from Sunday to mess this up. Many folks get into trouble by selling interests to friends and family thinking it’s an exception. Unfortunately, it’s not.