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Improving the Legal Environment for Start-Up Financing by Rationalizing Rule 144

Abstract

Private Equity is a crucial form of financing for start-ups and, therefore, important for economic innovation and 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.

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