Tim Sullivan Authors Article, "Securities Rules for Private Equity Financings"
In order to sell securities, a company must either register the issuance under federal and state securities laws or find an exemption from such registration requirements. The issuance of a security pursuant to the registration provisions of federal and state law is a time-consuming and costly process. Most small to mid-size businesses do not want to spend the money or time it would take to register the securities. In addition, the registration of securities with the SEC will subject the issuer to continual reporting requirements.
The question is how does one avoid registering the sale of the securities under federal or state law?
Federal and state law offer a number of exemptions from registration. These exemptions exempt the particular transaction (e.g., a sale to an accredited investor) not the underlying security. Subsequent sales of the security may have to be registered if no exemption is available.