 | Custom Search |
◄ Share or bookmark this page on several major sites.
Home | Archives | Blog | Bonds | Credit & Debt | Forex | Futures | Insurance | Mutual Funds | Options | Real Estate | Stocks | Taxes | Other Investment Topics | New Money Articles
<previous: Selling New Securities There are many securities which are exempt from the Securities Act of 1933—requiring neither registration nor a prospectus.
U.S. government securities—Treasuries—and municipal bonds are all exempt from registration.
An intrastate offering is an offering made only to the residents of a state by a corporation in that state. The offering must be registered in the state, and it must comply with SEC Rule 147:
Resale is permitted only:
Most life insurance contracts are exempt, except for those contracts that have investment risk, such as variable life policies and variable annuities.
Commercial paper is exempt from registration if its term is 270 days or less; and bankers acceptances, if the term 180 days or less.
Regulation A of the Securities Act of 1933 (aka Reg A) exempts small offerings of securities from the regular SEC registration if these conditions are met:
The public offering is not for more than $5,000,000 within a 12-month period.
The offering statement, which is a simplified disclosure document, must be filed with a Regional Office of the SEC at least 10 days before the issue is offered for sale.
The offering circular, which is similar to the prospectus in providing full disclosure, must be sent to each buyer of the issue at least 48 hours before the confirmation of the sale.
The offering circular must be revised if the issue is still being offered 9 months after the initial issue, and the issuer must file a sales report of the issue with the SEC every 6 months until the offer is terminated.
A private placement is the sale of securities to particular individuals and not to the general public. An offering that is not a public offering is exempted under Regulation D of the Securities Act from SEC registration.
The details of Reg D are explained in Rules 501 to 506. No public advertisements or solicitations for a Reg D issue are allowed. A tombstone ad may provide notice of the completion of an offering, but not the offering itself.
Securities are exempt if sold to accredited investors, who are basically individuals or institutions that have a lot of money and the financial wherewithal to invest in risky unregistered securities. Accredited investors include:
Although the SEC does not require that a disclosure document be offered to accredited investors, the issuer will usually provide a Private Offering Memorandum instead. After all, even accredited investors want to know some details about what they are investing in.
The issuer must file a Form D within 15 days after the commencement of a Reg D offering.
A non-reporting company can raise up to $1,000,000 from any number of individuals, accredited or not, without a SEC registration.
A corporation can raise up to $5,000,000 within a 12-month period from any number of accredited investors, but no more than 35 non-accredited investors.
A non-accredited investor is anyone or organization who is not an accredited investor. However, a married couple counts as 1 non-accredited investor, as well as any purchase of issues under the Uniform Gifts to Minors Act (UGMA) for their dependent children. A partnership that was not formed for a Reg D investment is considered to be 1 non-accredited investor; if the partnership was formed expressly for this investment, then the number of non-accredited investors depends on the status of each partner.
The dollar limitation of Rule 505 can be waived if the non-accredited investors are sophisticated investors who have had prior experience with a Reg D offering, or they are represented by a purchaser representative who has, such as an investment adviser, an accountant, or an attorney.
Rule 502 defines 2 specific violations of Reg D:
Aggregation: when the dollar values exceed the limitations imposed by Rules 504 and 505.
Integration: when the number of non-accredited investors exceeds the purchaser limitation of Rules 505 and 506.
Restricted securities are securities acquired in unregistered, private sales from the issuer or from an affiliate of the issuer. Investors typically receive restricted securities through private placement offerings, Regulation D offerings, employee stock benefit plans, as compensation for professional services, or in exchange for providing start-up capital to the company. Rule 144(a)(3) identifies what sales produce restricted securities. Restricted stock will usually have the restrictive legend, "restricted", on the certificates to serve as notice that their resale is restricted.
Control stock is stock owned by a control person (aka insider, affiliate), who is a corporate director or officer, or a stockholder with more than 10% of the voting stock, or the spouses of the aforementioned.
SEC Rule 144 places limitations on any resale of restricted securities. Control stock is also restricted; however, control stock certificates usually do not have the restrictive legend. Although these restrictions can be removed by fully registering the security, the time and expense of a full registration is usually prohibitive. However, control persons can sell normally restricted stock without restrictions if sold as part of a registered primary offering by the issuer. No restricted stock can be sold unless the issuer is current in filing all required financial statements to the SEC.
Before restricted stock can be resold:
Exceptions to the 144 requirement include the resale by a member firm in an agency capacity, or if a market maker in the security purchases the issue as a principal for his own account.
Note that even if the above conditions are satisfied, restricted stock cannot be sold to the public unless the restrictive legend is removed from the certificate. Only the tranfer agent can do this, with the consent of the issuer.
There is no minimum holding period for selling control stock if it was acquired in the open market. Also, if a non-affiliate has held restricted stock for at least 2 years, then there is no filing requirements and no selling restrictions.
Any issuer, underwriter, or investor who violates the Securities Act of 1933 is known as a statutory underwriter, which often involves someone selling restricted stock in violation of the statute.
Securities Act (SEA) Rule 144A permits the sale of unregistered securities to qualified institutional buyers (QIB), which are institutions—banks, insurance companies, etc.—that invest at least $100 million in securities from issuers not affiliated with the QIB. This is how most unregistered foreign securities are sold in the United States.
SEA Rule 145 applies Rule 144 protections if the securities were acquired because of a recapitalization: merger, consolidation, transfer of assets, or a reclassification that was not a result of a stock split or reverse split.
Rule 144- Selling Restricted and Control Securities
| Custom Search |