Improving the Legal Environment for Start-Up Financing by Rationalizing Rule 144
38 Pages Posted: 3 Aug 2004
Abstract
Private equity is a crucial source of financing for start-ups and, therefore, important for innovation and economic growth. The securities laws have an enormous impact on the ability of start-ups to obtain private equity investment. One of the most important of these laws is the SEC's Rule 144. Surprisingly, there has been little academic analysis on the efficacy of this rule. This paper shows that Rule 144 is likely to impair and distort the financing of start-ups. The paper also explains how Rule 144 can be modified to reduce these costs without interfering with any of the functions for which it was designed.
Keywords: Securities regulations, private equity, suboptimal investment, Rule 144
JEL Classification: K22, G32, G38, G24, G11, M14
Suggested Citation: Suggested Citation