Even with exempt securities or exempt transactions, a company can avoid registration and still violate the rules governing whom it approaches, who buys, or how investors later sell.
Before marketing, determine whether the exemption follows the security or depends on the transaction. Exempt securities receive statutory relief based on their characteristics or issuer. Exempt transactions qualify because the offering or resale meets particular conditions. A private placement generally produces securities whose later resales need registration or another exemption.
Exempt securities under Securities Act Section 3(a)(2) include United States government, municipal, and qualifying bank-issued or bank-guaranteed securities. Section 3(a)(3) covers qualifying commercial paper financing current transactions with issuance maturities no longer than nine months. A short maturity alone does not qualify a note financing long-term construction. Antifraud obligations still apply to exempt securities and transactions.
A local business may raise capital within its home state through intrastate offerings: Rules 147 and 147A. Rule 147 requires in-state organization, principal place of business, and offers and sales confined to residents.
Common mistakes
- Choosing $5 million for Rule 504 uses an obsolete ceiling; the current limit is $10 million.
- Counting 80 accredited purchasers against Rule 506(b)'s 35-person limit misidentifies the counted group.
- Accepting one sophisticated non-accredited buyer in an advertised Rule 506(c) offering defeats its purchaser condition.
Bottom line
- Exempt securities and exempt transactions remain subject to antifraud obligations.
- Rules 147 and 147A restrict purchasers and initial six-month resales to the relevant state.
- Regulation A permits $20 million under Tier 1 and $75 million under Tier 2 over 12 months.
- Rule 504 permits $10 million over 12 months; Rule 506 has no dollar ceiling.
Exam shortcut
Identify the seller first: issuer, ordinary holder, or control person. This separates offering exemptions from resale routes. Circle any public advertisement before counting investors. Then check whether the selected exemption permits the communication and the proposed buyers. For Rule 144, mark restricted status and affiliate status separately. Calculate the holding period before volume, and subtract prior three-month sales from available capacity.
The full lesson (about 3,862 words, 26 min read) adds 2 worked examples, all 6 common mistakes, a self-check, free in the app.
Learning objectives
- B20
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