Raising capital is a major milestone for any startup but doing it the right way means understanding fundraising compliance and legal compliance for raising money. Whether you’re issuing equity, convertible notes, or SAFEs, navigating securities law correctly is essential to avoid costly mistakes.
At Faison Law Group, we help founders ensure their fundraising efforts are structured properly from a legal perspective. In this guide, we’ll walk through the key elements of a startup fundraising legal checklist, including Regulation D exemptions, SEC filings, investor verification, and more.
Why Legal Compliance Matters When Raising Money
Many founders focus on securing investment without realizing that offering securities comes with legal obligations. The U.S. Securities and Exchange Commission (SEC), along with state regulators, oversees how companies raise funds.
Failing to follow private fundraising legal requirements can result in:
- Regulatory penalties
- Investor lawsuits
- Rescission rights for investors
- Damaged credibility with future investors
Bottom line: Ignoring legal compliance for raising money can derail your funding before it even begins.
Startup Fundraising Legal Checklist: Key Steps Before You Raise
Before launching your fundraising campaign, follow this startup fundraising legal checklist to stay compliant:
Essential Compliance Steps Before Fundraising:
- Choose the correct exemption (e.g., Regulation D)
- Verify investor accreditation status
- Draft subscription agreements and disclosures
- File SEC Form D within 15 days of first sale
- Complete applicable state blue sky filings
- Maintain accurate cap table and investor records
By following these steps, you’ll build trust with investors and reduce legal risk.
How to Raise Capital Legally: Understanding Regulation D
Most startups rely on Regulation D exemptions under federal securities law to raise funds without registering their offering with the SEC.
Common Regulation D Rules:
- Rule 506(b): Up to 35 non-accredited investors; no general solicitation allowed
- Rule 506(c): Allows public advertising but requires all investors to be accredited
Choosing the right path depends on your investor strategy and whether you plan to publicly promote your raise.
SAFE Notes and Convertible Notes: Are They Compliant?
Many startups use SAFEs (Simple Agreements for Future Equity) or convertible notes to defer valuation discussions. However, these instruments are still considered securities and must comply with SEC rules.
Key Compliance Tips:
- Always issue under an applicable exemption
- Document terms clearly in a binding agreement
- Ensure investor qualifications match exemption criteria
Failure to structure these instruments correctly can lead to avoiding SEC violations startup founders commonly face.
Legal Documents for Raising Capital
A well-prepared fundraising round includes several legal documents for raising capital, such as:
- Subscription agreements
- Investor questionnaires
- Private placement memoranda (PPM)
- Cap table records
- Voting and shareholder agreements
These documents not only protect your company legally but also reassure investors about the legitimacy of your offering.
State vs Federal Fundraising Laws
Startups must comply with both state vs federal fundraising laws. While Regulation D provides a federal exemption, most states require separate “blue sky” filings.
Failing to comply with state-level requirements can block your ability to raise from local investors or trigger fines.
Pro Tip: Always coordinate with legal counsel to ensure compliance at both levels.
Avoiding SEC Violations: Best Practices for Startups
The most common SEC violations among startups include:
- Improper use of general solicitation under Rule 506(b)
- Missing SEC Form D filing deadlines
- Misrepresenting investment terms or risks
- Selling unregistered securities without an exemption
Avoiding these mistakes requires proactive planning and expert legal support.
Final Thoughts: Stay Compliant While Growing Your Startup
Raising capital doesn’t have to mean running afoul of the law. By understanding how to raise capital legally, you protect your business, your investors, and your long-term vision.
From choosing the right exempt offering to ensuring proper investor accreditation, every detail matters.
Need Help With Fundraising Compliance?
Navigating private fundraising legal requirements doesn’t have to be overwhelming. At Faison Law Group, we specialize in guiding founders through the legal complexities of venture capital compliance.
Whether you’re preparing for your first round or scaling across multiple jurisdictions, our team ensures your offering is structured for success and fully compliant.
👉 Contact us today to schedule a consultation and get expert legal support for your fundraising journey.