Securities Laws Definition

Securities laws are regulations established by the government to safeguard investors and maintain the integrity of financial markets by governing the issuance, trading, and disclosure of stocks, bonds, and other investment instruments.

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Securities laws are the laws, rules, and regulations governing the purchase and sales of securities in a given market or country. In the U.S., the securities law definition also applies to certain standards and practices for auditors. That aspect of securities laws covers individuals and firms who audit banks, brokers, and companies that issue and deal in publicly offered securities.

The definition of securities laws can even include rules and regulations issued by self-regulatory organizations like stock exchanges or trade organizations like the Financial Industry Regulatory Authority (FINRA). 

What are securities laws?

Securities laws are designed to protect investors. By design, investors have less information about financial products than the companies that issue them or the bankers that sell them. The meaning of securities laws is to make the playing field a little more even between investors and publicly traded companies.

A security itself is only a piece of electronic paper. A security’s worth comes from the claims a holder has upon the assets of the company that issued the security. Securities’ value can also depend upon a variety of complex factors. These may include the issuer’s financial condition, the issuer’s management, and the competitive, tax, and regulatory climate the issuer operates in. The advantage of securities laws is that they help standardize the way companies are valued and the type of information available to potential investors. 

What are the main securities laws in the United States?

The U.S. has many securities laws to help investors stay informed. Some fundamental securities laws in the U.S. include:

  • Securities Act of 1933
  • Securities Exchange Act of 1934
  • Trust Indenture Act of 1939
  • Investment Company Act of 1940
  • Investment Advisers Act of 1940
  • Sarbanes-Oxley Act of 2002
  • Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
  • Jumpstart Our Business Startups Act of 2012
  • Other federal rules and regulations
  • State blue sky laws

Congress enacted the first of the federal securities laws, the Federal Securities Act of 1933, right after the Great Depression. The Securities Act of 1933 regulates the public offering and sale of securities in interstate commerce. This Act also requires registration of securities with the Securities Exchange Commission and requires the disclosure of information to investors.

Securities Laws Benefits

Businesses and individuals alike benefit from robust securities laws. When investing your small business’s assets, you want to be sure you’re putting money in the safest markets available. Securities laws help ensure you’re as protected as you can be when you take investment risks.

Securities Laws Disadvantages

In some countries like the U.S., securities laws can come with onerous requirements. If you’re a business owner looking to issue public securities, there are expensive compliance requirements. Setting up a corporation that could someday issue publicly traded securities is an expensive undertaking thanks to securities laws in the U.S. Carefully consider the structure of your legal entity and the securities law disadvantages before you decide how you’re going to finance your next venture.

Securities Laws: Summary

  • Securities laws are the laws, rules, and regulations governing the purchase and sales of securities
  • The U.S. has many securities laws that cover all aspects of the securities business, including accounting and audits
  • Compliance with securities laws is a serious and expensive undertaking that business owners need to be prepared for

How We Can Help

Looking for ways to grow your small business? The good thing about securities laws is that they protect business owners and investors alike. If you’re looking to set up a corporation, we can help you set one up virtually anywhere in the U.S. Our Corporate Formation Service can help you form your entity quickly and easily. Running your business as a corporation can enable you to issue stock and potentially take part in an IPO. And once you’re up and running, we can help you with business entity compliance with our Worry-Free Compliance Service.

Disclaimer: The content on this page is for information purposes only and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.

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Written by Team ZenBusiness

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