What is Issuer’s Exemption?

Question from Bociys, What is Issuer’s Exemption?

Answer from AI:

Understanding Issuer’s Exemption

Issuer’s Exemption refers to specific situations where a company (the issuer) that is offering securities for sale is exempt from the usual registration requirements under federal and state securities laws. These exemptions are designed to facilitate capital raising for smaller companies and startups by reducing the regulatory burden.

Federal Exemptions

Under U.S. federal law, the Securities Act of 1933 requires that all securities offered or sold must be registered with the Securities and Exchange Commission (SEC) unless an exemption applies. Some common federal exemptions include:

• Regulation D: This includes Rules 504, 505, and 506, which provide exemptions for small offerings and private placements.
• Regulation A: This allows companies to offer and sell up to $50 million of securities in a 12-month period without full SEC registration.
• Rule 147 and 147A: These rules provide intrastate offering exemptions, allowing companies to raise funds within a single state.
• Regulation Crowdfunding: This allows companies to raise up to $5 million in a 12-month period through crowdfunding platforms.

Example: Regulation D, Rule 506(b)

Under Rule 506(b) of Regulation D, an issuer can raise an unlimited amount of money from an unlimited number of accredited investors and up to 35 non-accredited investors. However, the issuer cannot use general solicitation or advertising to market the securities.

State Exemptions

In addition to federal exemptions, issuers must also comply with state securities laws, often referred to as “Blue Sky Laws.” Each state has its own set of exemptions, which can vary widely. Some common state exemptions include:

• Intrastate Offering Exemption: Similar to federal Rule 147, this allows companies to raise funds within a single state without registering with the SEC.
• Small Offering Exemption: Many states have exemptions for small offerings, often aligned with federal Regulation D.
• Isolated Transaction Exemption: This applies to one-time sales of securities that are not part of a larger offering.

Example: California’s Limited Offering Exemption

California’s Limited Offering Exemption (Section 25102(f) of the California Corporations Code) allows issuers to sell securities to up to 35 non-accredited investors without registering the offering, provided certain conditions are met.

When to Seek Legal Advice

While issuer’s exemptions can simplify the process of raising capital, they come with specific requirements and limitations. Failure to comply with these requirements can result in significant legal and financial consequences. Therefore, it is crucial to:

1. Understand the specific requirements of the applicable federal and state exemptions.
2. Consult with a legal professional to ensure compliance with all relevant laws and regulations.
3. Consider the long-term implications of using an exemption, including potential restrictions on resale and reporting obligations.

For more detailed information, you can refer to the [SEC’s guide on small business exemptions](https://www.sec.gov/smallbusiness/exemptofferings) and the [North American Securities Administrators Association (NASAA) resources](https://www.nasaa.org/industry-resources/corporation-finance/).

Remember, this information is intended to provide a general understanding of issuer’s exemptions. For personalized legal advice, always consult with a qualified attorney.