It is not unusual for us to be approached by someone who wants to start a new business, or grow an existing business, and who wants to bring in a few friends or business associates to “invest” in the business.
Such seemingly simple business deals are fraught with liability to the well-intending entrepreneur, especially if the investors are not engaged in running the business.
The Oregon Securities Law is one of the harshest securities laws in the United States. It creates liability for “every person who participates or materially aids” in the unlawful sale of a security. That not only includes us, as lawyers, but you.
A security not only includes stocks and bonds, but can include LLC Memberships, real property tenant-in-common interests, and promissory notes. The definition of a security includes “investment contracts,” which has four elements: an investment; a common enterprise; for profit; to be achieved by the management or control of others.
The entrepreneur (you) can be liable to the investor for any violation of the securities law, including the failure to comply with technical requirements, such as failing to register with state regulators or failing to qualify for an exemption. A more uncontrollable risk is liability for the sale of a security by means of an untrue statement of material fact or a misleading omission. What you don’t say can be fatal.
Damages are the entire amount of the investment, plus interest, plus attorney fees. If your deal involves investors who aren’t actively involved in running the business, you are likely selling a security, and should seek professional advice in order to best mitigate your exposure.