Securities Registration for Non-Established Issuers

Instructor: Bianca Ince

Bianca has FINRA Series 7, 63, SIE licenses and has licensing program at her firm for 5+ years.

In this lesson, we will discuss how securities issued outside of an IPO by issuers who do not meet the criteria for filing/notification must register through qualification.

Securities Registration Through Qualification

Imagine you are the CFO of Cookie Company that went public one year ago. The sale proceeds from the IPO were used to grow the business. Your company has decided to issue more securities to raise the capital needed to open a new location.

As the CFO, it is your job to oversee the registration of the new securities issue. You are concerned because the securities cannot be registered through coordination, and the company may not meet the criteria for filing/notification. The only remaining method to register the securities is through qualification. The Securities Act of 1933 requires that all non-exempt securities be duly registered through one of these three methods.

The CEO and board of directors are expecting the new issue to be registered in less than one month, which means you have a week to research and request registration through the qualification method. You also decide to review the coordination and filing/notification methods to confirm they cannot be used to register the securities.

Registration Through Coordination and Filing/Notification

You decide to review paperwork for the company's IPO, and learn that the securities were registered through coordination. Since coordination can only be used to register securities issued during an IPO, it cannot be used to register these new securities. Filing/notification is the preferred method for registering securities outside of an IPO, but you must meet specific criteria:

  • Issuer must have been in business at least 36 months.
  • Current minimum net worth of $4 million, or $2 million for last two years.
  • Issuer cannot have defaulted on any debt (included preferred dividend payments).
  • Securities being registered must have a minimum bid price of $5/share.
  • Securities must have at least four market makers.
  • Securities must be registered with the SEC.
  • Issuer must have at least 500 shareholders, and a minimum of 400,000 shares outstanding.

After reviewing all of the criteria, you confirm that your company does not meet the criteria to register through filing/notification. The net worth for Cookie Co. has been $1.5 million for the past two years, which does not meet the minimum net worth requirement. The securities must be registered through qualification, so you turn your attention to learning more about this last resort method.

Registering Securities Through Qualification

While conducting your research, you learn qualification is the method used when securities are issued outside of an IPO or the issuer does not meet the criteria for filing/notification. Securities that will only be sold in one state, an intrastate offering, are also registered through qualification.

Registration through qualification is considered the most complicated and time-consuming method. The complexity of the process is primarily due to the many documents that must be included in the registration statement. This is the official request submitted to the state administrator by the issuer requesting to register their securities.

After reviewing the required documents you prepare the registration below.

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