When small companies go public, they often find themselves unprepared for the enormousfinancial and legal risks they face from complex Securities and Exchange Commission regulations. "If the SEC decides that one of your directors or officershas traded on inside information, your company or its management can be held financially liable," says Ralph Sutcliffe, a partner at Kronish, Lieb, Weiner &Hellman, in New York City.

To protect yourself and your company, set up a two-tiered compliance program and appoint your chief financial officer, general counsel, or corporatesecretary to supervise it. First, send out a memo to all employees explaining that no one can trade the company's stock based on knowledge that hasn't beendisclosed to the public. State clearly that anyone who violates the policy will be dismissed. Second, for officers, directors, and others more likely to possesscritical inside information, circulate a document that spells out legal issues and consequences, and require people to check with your company's complianceofficer before buying or selling company stock.

Some companies take it even further. Research Frontiers, a light-control-research business that has made two stock offerings, requires all employees,regardless of position, to meet with the company's general counsel before purchasing stock. The Woodbury, N.J., company also monitors itsemployees' stock trades involving company licensees or suppliers.