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Simple English definitions for legal terms
blue sky law
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A quick definition of blue sky law:
A blue sky law is a state regulation that requires companies selling securities to register with the state and disclose information about the investment to potential buyers. The term "blue sky" comes from the idea of selling something that doesn't exist, like the sky. These laws were created in response to people losing money in fraudulent investment schemes. While federal securities laws also exist, blue sky laws provide additional protection for investors. Each state has its own blue sky laws, which can vary in their requirements and enforcement. The goal of these laws is to prevent fraud and ensure that investors have accurate information before making investment decisions.
A more thorough explanation:
Blue sky laws are regulations created by individual states to oversee the sale of securities. These laws require companies to register with the state and provide information about their securities to prevent fraud and protect investors. The term "blue sky" comes from the idea of speculative investment schemes having no more basis than the blue sky above.
- A company in California wants to sell securities to investors. They must meet a merit test to show that their securities are fair for investors under Title 4, Division 1 of the California Corporations Code.
- A company in New York wants to sell securities, but they do not need to register their securities unless they are sold in real estate or intrastate offerings under N.Y. GBL Article 23-A.
These examples illustrate how blue sky laws vary from state to state. Some states have strict requirements for companies to meet before they can sell securities, while others have more relaxed rules. However, all blue sky laws aim to prevent fraudulent sales and ensure that investors have accurate information about the securities they are buying.