From the perspective of limiting exposure to liability in your business structure, it is extremely important that the small business owner either properly register an offering of securities with the federal and state governments, or ascertain that an exemption applies. Failure to comply with federal and state securities laws can result in large civil fines and the likelihood of personal liability for losses suffered by investors.
If a small business owner has raised capital from investors and the business fails, there is a likelihood that the business owner will be sued. One of the first things a plaintiff's lawyer will examine is whether the business owner complied with federal and state securities laws. If there is a failure in this respect, the small business owner will likely lose. Conversely, if the owner has complied with these laws, the small business owner will likely win, even though the investors suffer a total loss.