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Business Startups Investor Risks, Obligations, and Rights

startup lawyer los angeles

Interested in investing in business startup? It is crucial to understand your rights as an investor to ensure you are making a safe investment.

Investing can be a very stressful process for first-time investors. Knowing your legal rights as an investor can ease this process and provide you comfort in moving forward with an investment. To effectively assess the legitimacy of an investment, investors have the right to honest advertising, complete and accurate information, and disclosure of risks and future obligations. Providing investors with false or misleading information is against the law and subject to civil, criminal, or regulatory penalties.

Honest Advertising. The person or entity selling the investment is required to provide honest and lawful information about the investment they are advertising. Advertisements can be deceiving and an easy way to convince potential investors to invest their money and trust that it will provide them with a solid return. An investor will never know the true position of that person or entity in the market without conducting proper and thorough research to learn “what they’re all about.” In 1986, ZZZZ Best, Inc., claimed itself as a multimillion-dollar carpet cleaning company and after going public, reached a market capitalization of $200 million. Shortly after, the owner, a teenager at the time, was found to have “built” this company based on fraudulent invoices and documents. The owner provided dishonest advertising to investors and as a result, spent 25 years in prison.

Complete and Accurate Information. Having access to complete and accurate information will allow investors to make well-informed decisions about their investments. Companies are required by law to provide investors with all the information necessary to make that informed decision. It is illegal for companies to hide information from the public or from potential investors to make their company sound healthier than it really is. As an investor, you have the right to seek more information needed to make your decision including any formal documentation, financial statements, or annual reports.

Disclosure of Risk and Future Obligations. The person or entity selling the investment is required to provide information about any risks they face or future obligations they are expected to meet. There are many different factors that can make an investment risky and knowing exactly how risky it is will be a crucial indicator to the long-term success of that investment. Individuals or companies, who have future obligations that they are required to meet, increase the risk of the investment and put investors in an undesirable position.

In all, be sure to know your rights as an investor so that you can make the best-informed decision you possibly can. There are many people and companies who make an effort to provide the least information possible while making a great effort to reel you in. Be cautious of the investments you decide to take on and remember that you are protected by the law in situations where there are efforts to fraud an investor out of their money.


This content is intended for educational purposes only.

KAASS LAW is authorized to practice law in California. The above content is intended for California residents only. This content provides only general information, which may or may not reflect current legal developments. KAASS LAW expressly disclaims all liability in respect to actions taken or not taken based on any of the contents of this website. The above content DOES NOT create an attorney-client relationship. KAASS LAW does not represent you unless you have expressly retained KAASS LAW in person at the KAASS LAW office.

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