More details on registration with the SEC

There are actually two different types of registration (see:

  • Registration under the Securities Act (1933)
    • When required?
      • For a public offering of some new security
      • If the company is registering some outstanding security (that the company intends to sell publicly?)
    • What requires?
      • The registration itself requires a prospectus, additional info for investors, and audited financial statements from the issuer.
      • The company must fully disclose all material facts.
      • The company must do an Exchange Act registration as well.
  • Registration under the Exchange Act (1934)
    • When required?
      • Any security registered under the Securities Act
      • Any security listed on a national exchange
      • Any security issued by a company with >=$10MM in assets *and* which has >=500 shareholders.
    • What requires?
      • Continual disclosure of information about the business’s operations, financial conditions, management, and so on. Also, Sarbanes Oxley imposes additional requirements – in particular that these periodic reports are “certified” by all executive officers of the company (and those officers bear some liability in case the report contains factual inaccuracies), see: section 302, see: HR 3763-33.
        • These continual filing obligations can be suspended if the security ceases being interesting, i.e.
          • The security has <300 shareholders OR
          • The security has between 300 and 500 shareholders AND <$10MM in total assets.
      • The company must comply with Proxy Rules in soliciting a shareholder vote.
      • Anyone who acquires >5% of the shares of a given class of securities must file a “beneficial owner” report (provides info about this owner) for as long as they own >=5% of the shares.
      • SEC’s tender-offer rules apply whether an outsider or the company itself is issuing a tender offer for some number of shares of the given class of securities.
        • Must provide info about the issuer of the offer
        • Time limits for the duration of the offer apply
      • Must report: transactions (involving the company’s equity securities) by officers, directors, and those who own >10% of the given class of security.
    • Exemptions: private offerings given that the purchasers of the securities (a) are “sophisticated investors”, (b) do not sell or distribute the securities to the public, AND (c) have access to the same level of information as is typically provided in an Exchange-Act registration.
      • So does this mean that a security can be exempt EVEN IF the issuer has >$10MM in total assets AND >= 500 shareholders?
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