Securities laws disclosure: Overview, definition, and example
What is securities laws disclosure?
Securities laws disclosure refers to the requirement that companies provide accurate, complete, and timely information when issuing or selling securities, in accordance with federal and state securities laws—primarily the Securities Act of 1933 and the Securities Exchange Act of 1934. In contracts, this clause confirms that a party has complied with these disclosure obligations and has not made any false or misleading statements in connection with a securities offering or transaction.
Why is securities laws disclosure important?
This clause helps protect investors and counterparties by ensuring that all material facts related to the securities offering have been properly disclosed. It also shields the issuing party from liability by affirming their intent to comply with legal disclosure standards. Misstatements or omissions can trigger enforcement actions, investor lawsuits, or contract rescission—so this clause is crucial for managing regulatory and legal risk.
Understanding securities laws disclosure through an example
A biotech company enters into a private placement agreement to sell preferred shares to institutional investors. The agreement includes a securities laws disclosure clause confirming that all offering materials and communications comply with applicable securities laws. If the company fails to disclose pending FDA concerns and the investors later suffer losses, they may argue that the clause was breached due to material omissions—potentially giving them a right to rescind their investment.
Example of a securities laws disclosure clause
Here’s how a securities laws disclosure clause may look like in a contract:
"The Company represents and warrants that neither this agreement nor any other written statements or materials provided in connection with the offer and sale of the securities contains any untrue statement of a material fact or omits to state any material fact necessary to make the statements made not misleading, in compliance with applicable federal and state securities laws."
Conclusion
The securities laws disclosure clause reinforces the integrity of a securities offering by ensuring transparency and legal compliance. It protects both the issuer and the investor by setting clear expectations around what must be disclosed. If you’re involved in any transaction that includes the offer or sale of securities, this clause is a key legal safeguard.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.