An associate emails a "factual" company fact sheet to investors three days before the S-1 hits the SEC. That single message can become an illegal offer. Section 5 governs what you can say, and when, from the moment a deal is contemplated through the final sale.
The Securities Act of 1933 requires that a public offering of securities be registered unless an exemption applies. Section 5 is the operative command. It bars any offer or sale until a registration statement is filed and effective, and it requires that a prospectus accompany delivery.
Section 7 lists what the registration statement must contain: a description of the business, properties, management, capitalization, the use of proceeds, risk factors, and audited financial statements. Section 10 governs the prospectus, the disclosure document delivered to investors and physically part of the registration statement. A Section 10(a) prospectus is the final, complete version; a Section 10(b) prospectus is a permitted preliminary version used before effectiveness.
KEY: Section 5 is the prohibition, Section 7 is the contents list, Section 10 is the prospectus rulebook. Remember the order 5-7-10 as command, contents, prospectus.
Common mistakes
- Allowing a sale during the waiting period. Oral offers and the red herring are fine, but no contract of sale may close until the registration is effective. Closing early is gun-jumping.
- Swapping Regulation S-K and S-X. S-K is narrative (business, risk factors, MD&A); S-X is financial statements. Questions on audited statement presentation point to S-X.
- Mislabeling the WKSI float threshold. It is $700 million in non-affiliate common-equity float, computed after removing affiliate shares, not total shares times price.
Bottom line
- The registration statement is filed under Securities Act Section 5; Section 7 lists required contents; Section 10 governs the prospectus that is part of it
- The preliminary prospectus (red herring) circulates during the waiting period; the final prospectus must accompany or precede delivery of the security
- Rule 415 permits shelf registration; Rule 405 defines a well-known seasoned issuer (WKSI), generally $700 million non-affiliate float, who files an automatic shelf; Form S-1 is the long-form
- Exchange Act Section 12(b) registers exchange-listed securities, 12(g) registers large interstate-commerce issuers, 12(j) lets the SEC suspend or revoke registration
Exam shortcut
Sections 5-7-10 in order: 5 prohibits offers before filing/effectiveness, 7 lists the contents, 10 governs the prospectus. Sales always wait for effectiveness. Research safe harbors by position: 137 = not in the deal, 138 = different class, 139 = regular course. WKSI freedom = Rule 163; 30-day safe harbor = Rule 163A.
The full lesson (about 2,821 words, 19 min read) adds 2 worked examples, all 6 common mistakes, a self-check, free in the app.
Learning objectives
- B13
- B14
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