Section 4 provides for two statutory exemptions from registration of securities by an issuer. The exemptions available under Section 4 of the 33 Act provide for transactional exemptions for the securities, rather than a blanket exemption for the security itself.
Section 4(a)(5) - Statutory Securit... Section 4(a)(5) - Statutory Securities Exemption
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Statutory Exemption for Accredited Investors - Section 4(a)(5) -Section 4(a)(5) of the 33 Act provides a statutory exemption for securities sold in accordance with its provisions.
Note: The notable difference between Section 4(a)(5) and Regulation D exemptions is that Regulation D also allows for sales to non-accredited investors. Section 4(a)(5) is rarely used as a stand-alone exemption. The reason is because this statutory exemption generally fits within the rule-based exemptions of regulation D (Rules 505 and 506, for example), but does not contain many of the benefits.
What are the Limitations of a Section 4(a)(5) statutory exemption?
The following limitations apply to a Section 4(a)(5) issuance:
- Disclosure - The issuer must provide a prospectus to purchases that complies with 33 Act disclosure provisions;
- Accredited Investors - The issuer can only offer and sell securities to accredited investors;
- General Solicitation - The issuer cannot undertake any advertising or other forms of general solicitation of purchasers;
- Dollar Value - The maximum offering amount cannot exceed $5,000,000;
- Notice - The issuer must provide notice of sale to the SEC;
- Restricted Securities - Securities sold under section 4(a)(5) constitute "restricted securities" under Rule 144(a)(3) and cannot be resold in the future without registration or perfection of a separate exemption; and
- State Registration - Securities exempted under section 4(a)(5), like some other statutory exemptions, do not fall within the meaning of a federally covered security. The result is that federal law does not preempt state laws regulating the securities.
Discussion Question
Why do you think the securities laws allow for a statutory exemption from registration of private offerings that meet the requirements of section 4(a)(2)? What about 4(a)(5)? Can you see how the restrictions on section 4(a)(5) make it a rarely-used exemption?
Practice Question
ABC Corp is your employer and is considering a private issuance of securities. As a consultant for ABC Corp, you want to make certain that they understand the limitations and restrictions that apply to an issuance under Section 4. If asked, can you explain the limitations that apply to section 4(a)(2) and 4(a)(5)?
Related Topics
- Securities Law (Intro)
- What are Securities Laws?
- What is a Security?
- What qualifies as an Investment contract?
- What are the primary federal securities laws?
- What are the regulatory goals of security laws?
- What is the Securities and Exchange Commission?
- What is an Initial Public Offering?
- What is a Direct Public Offering?
- What is Crowdfunding?
- Securities Act of 1933
- What is an Offer to Sell securities?
- Who are the parties regulated in an offer to sell securities?
- What are the primary disclosure documents required in an offer to sell securities?
- Forward Looking
- Red Herring Prospectus (Securities) Definition
- Registration of Securities
- What is an issuer allowed to do at each stage of the registration process?
- How are issuers classified for purposes of the registration and offering process?
- What is an issuer allowed to do during the Pre-filing Period?
- What are the limitations on the issuer during the Post-filing, Waiting Period?
- What is an issuer allowed to do during the Post-Effective Period?
- What is an Emerging-Growth Company?
- What type of information must an issuer disclose?
- What laws govern the mechanics of disclosure in a securities offering?
- Deficiency Letter (Securities Law)
- Registration Exemptions Securities Act of 1933
- What are Exempt Securities and Exempt Transactions?
- What are Restricted Securities?
- Section 3(a)?
- Section 3(b)?
- What is a Rule 147 Exemption?
- What is a Section 4(a) Exemption?
- Section 4(a)(5)?
- What is a Regulation A Exemption?
- What are Regulation D Exemptions?
- What is a Rule 504 Exemption?
- What is a Rule 505 Exemption?
- What is a Rule 506(b) Exemption?
- What is a Rule 506(c) Exemption?
- What is Rule 502(d) and the Rule 144 Safe Harbor?
- Rule 144a
- What are the disclosure requirements for companies employing an exemption?
- What is the requirement to file Form D?
- What is the effect of failing to register an offering under Section 5?
- Liability Under the Securities and Exchange Act of 1933
- What is civil liability under Section 11 of the 33 Act?
- What is civil liability under Section 12 of the 33 Act?
- What are defenses available to charges under Sections 11 and 12?
- What is civil liability under Section 17 of the 33 Act?
- What is potential criminal liability under the 33 Act?
- The Security Exchange Act of 1934
- When must an issuer register pursuant to the 34 Act?
- What disclosures are required of reporting companies under the 34 Act?
- What is liability under Section 10(b) and Rule 10(b)(5)?
- What is insider trading under Rule 10(b)(5)?
- What damages are available under Section 10 and Rule 10(b)(5)?
- What is insider trading under Section 14 of the 34 Act?
- What is liability under Section 16 of the 34 Act?
- What is liability under Section 18 of the 34 Act?
- What is criminal liability under the 34 Act?
- Liability under the Securities Enforcement Remedies Act?
- Blue Sky Laws State Securities Laws
- What are Blue Sky Laws?
- When is an issuer required to comply with state securities laws?
- What are the registration requirements under state law?
- What is Coordinated Registration under state law?
