Securities Registration Through Filing or Notification

Instructor: Bianca Ince

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

The Securities Act of 1933 requires that securities be duly registered at the state level, exempt from registration, or sold through an exempt transaction. In this lesson, we will review the process by which securities register at the state level through filing or notification method.

Securities Registration Through Filing or Notification

Say you're the CEO of Fortune-iT company that is already public, with a total of 400,000 shares owned by stockholders. However, Fortune-iT company decides to issue more shares for sale to raise the capital needed to expand the business. What would your company need to do before the additional shares could be offered for sale?

That's right - register the securities! The additional offering would have to be registered with the state administrator before it could be offered for sale.

The Securities Act of 1933 requires that all securities be duly registered at the state level, exempt from registration, or sold through an exempt transaction. A subsequent offer of securities for sale would be duly registered, meaning all registration requirements have been met, through notification/filing.

If the offer does not meet the requirements for registration through filing/notification, the offer would have to be registered through qualification. Let's take a look at what is required to register through filing/notification.

Filing/Notification for Subsequent Offers

Companies will frequently issue more securities for sale after the IPO, primarily to raise additional capital for business operations. If ABC company meets the criteria, the new security offering can be registered through the filing or notification method with the state administrators. The registration would be submitted at both the federal and state level, similar to IPOs registered through coordination.

Criteria for Registration Through Filing/Notification

Let's review the criteria an issuer must meet to register its securities through filing/notification. Issuers must:

  • have a minimum net worth of $4 million or a minimum of $2 million for at least two of last three years
  • not have defaulted on any debt for last 12 months (this includes preferred dividend payments)
  • have been in business for a minimum of 36 months at the time of filing/notification
  • have at least 500 stockholders and at least 400,000 shares outstanding

Securities must being issued must have a minimum bid price as $5/share and be registered with the SEC. It must also have four or more market makers. These are participants in the securities market, such as brokerage houses, that buy and sell securities for their own account.

When a money maker purchases the securities of a company, it is an indication that the securities are in demand. The money maker will then sell securities in the market at a profit. Note that a state administrator can require additional criteria or documentation beyond what is listed above. If an issuer does not meet the criteria, they would be required to register the securities through qualification.

Say ABC Inc. is a manufacturing company that has been in business for over ten years. ABC had its IPO one year ago, during which 500,000 shares of their common stock were issued to New York state residents. ABC is planning to expand the business and needs to raise additional capital. They decide to offer 200,000 additional shares to New York residents.

  • ABC Inc.'s current net worth is 7 million
  • Securities are being offered at a bid price of $7/share
  • ABC securities are registered with the SEC, and have 3 money makers on them
  • Company has never defaulted on any debt, including preferred dividend payments
  • ABC has 550,000 shareholders currently

Does ABC Inc meet the criteria to register its securities through filing/notification? The answer is no, as its security falls short of the four market makers (it has only three). ABC would have to register after they met the minimum, or proceed with registering the new issue through qualification.

Registration Statement

Say ABC waits until they meet all the criteria for registering its securities through filing/notification. Now they must prepare a registration statement. This is an official notification to the state administrator that the corporation intends to register additional securities for sale.

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