Blue Sky Laws

When founders think about fundraising compliance, most focus on the SEC — accredited investors, Reg D exemptions, Form D filings, and federal securities law.
But there’s another layer of regulation that often catches first-time entrepreneurs off guard: state securities laws, commonly known as “blue sky laws.”

Even if your offering qualifies for a federal exemption, most states still expect a filing, a fee, or both.
Ignoring those requirements can create problems later — especially during due diligence or future investment rounds.

Here’s what founders need to know.

What Are Blue Sky Laws?

“Blue sky laws” are state-level securities regulations designed to protect investors from fraud and misleading offerings.
They pre-date the SEC itself — the first one was enacted in Kansas in 1911 — and they still apply to any company that sells securities (like stock, SAFEs, or convertible notes) to residents of that state.

Each state has its own securities division, filing process, and enforcement rules.
These laws require either registration of the securities being sold in the state, or an available exemption — usually linked to the federal exemption you’re using.

Why Federal Exemption Doesn’t Mean State Exemption

Startups typically rely on Regulation D (Rule 506(b) or 506(c)) to avoid SEC registration.
The good news: Reg D pre-empts most state registration requirements.
The bad news: it does not pre-empt state notice filings and fees.

That means if you raise capital under Reg D and accept an investor who lives in New York, California, or Texas, you must still:

1. File a notice (often called a “Blue Sky Notice Filing”) with that state’s securities regulator, and
2. Pay a state filing fee — typically between $100 – $500 per state.

These filings notify the state that you’re selling securities to one of its residents, even though the offering itself is federally exempt.

When Blue Sky Laws Apply

You generally must comply with a state’s blue-sky requirements when:

• You sell equity, convertible notes, or SAFEs to investors who reside in that state;
• You issue stock options or warrants to employees in that state (under certain rules); or
• You rely on a non-pre-empted exemption like Rule 504 or Regulation Crowdfunding.

For most startups raising private capital, the relevant scenario is the first one:
you raise under Rule 506(b) or 506(c) and need to file state notices for every investor’s home state.

How to File Blue Sky Notices

The process varies by state but generally looks like this:

1. File your Form D with the SEC within 15 days of the first sale.
2. Submit a copy of that Form D (or file electronically via NASAA’s Electronic Filing Depository – EFD) to each investor’s state regulator.
3. Pay the filing fee.
   • Common fees: $100 – $300 per state.
   • Some states, like New York and Florida, have special rules or higher fees.
4. Track renewal dates. Some states require annual renewal if the offering remains open longer than a year.

Many law firms — including Apex Corporate Law — use compliance systems that automate these filings across multiple states, ensuring deadlines aren’t missed.

Common Mistakes Founders Make

1. Assuming Form D covers everything.
   It doesn’t. Form D is a federal filing. Each investor’s state may still expect its own notice and fee.
2. Forgetting to track investor residence.
   State jurisdiction follows the investor’s home state, not the company’s.
3. Missing the 15-day deadline.
   Most states require the notice within 15 days of the first sale in that state.
4. Ignoring blue-sky filings for follow-on rounds.
   Each new offering — even a SAFE conversion or bridge round — may require fresh filings.
5. Failing to clean up before a priced round or acquisition.
   Missing filings often surface during investor or acquirer due diligence and can delay closings.

Penalties for Non-Compliance

While rare, states can impose:

• Fines and late fees for missed filings,
• Stop orders preventing further sales, and
• In extreme cases, rescission rights allowing investors to demand their money back.

Even if enforcement never occurs, missing filings can raise red flags for future investors — who may require you to cure past filings before closing.

How to Stay Compliant Across States

• Track your investors’ states of residence from day one.
• File Form D promptly, then make corresponding blue-sky filings in each state.
• Use the NASAA EFD system for states that accept it — it simplifies multi-state submissions.
• Keep proof of filings and receipts for due diligence.
• Work with counsel or compliance software that automatically manages deadlines and renewals.

At Apex Corporate Law, we integrate state filing workflows directly into our clients’ capital-raising processes, so every investor’s jurisdiction is covered automatically.

The Bottom Line

Blue sky laws are a quiet but crucial part of startup fundraising compliance.
Even if you’ve handled your SEC filings correctly, you’re not fully compliant until each investor’s state has been notified.

Think of it this way: the SEC governs the “sky,” but the states control the “ground.”
To raise capital confidently — and avoid problems later — make sure both levels are covered.