Founders' Shares Before businesses go public, their shares are often owned by the entrepreneur and other private placement investors. Depending upon the difference between the price paid for founders' shares and the offering price to the public, special disclosure in the prospectus may be required under SEC rules. If the private placement was made within three years before the proposed public offering, the blue sky laws in merit states may require an escrow of the cheap shares, or even prohibit the sale to their residents as unfair.
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