Series 66

Regulation of Securities - Registration by Qualification

Registration by qualification pertains to all other offerings (that are not federally exempt) that are made within a state. Examples of such include offerings that are intrastate and/or are SEC exempt, based on their smaller size.

The registration period is usually one year, and all persons registering a security must pay the applicable fee.

In the resources portion of the text, you will find a link for a sample registration by qualification application for the state of Utah. Utah was chosen randomly and does not constitute what you will see in all states. However, on the front page of the application website, the site mentions:

"Any security may be registered by qualification. Securities should be registered by qualification when no other method is available."

While this point is not specifically highlighted in the USA, it is important to recognize. Registration by qualification is generally the final method of registration if a security cannot be registered another way.

Qualification entails submitting the following information to the Administrator:

  • With respect to the issuer and any significant subsidiary:
    • The issuer's name, address and form of organization
    • The State or foreign jurisdiction and date of its organization
    • The general character and location of its business
    • A description of its physical properties and equipment
    • A statement of the general competitive conditions in the industry or business in which it is or will be engaged
       
  • With respect to each director and officer of the issuer, and other person having a similar status or performing similar functions:
    • The person's name, address and principal occupation for the previous five years
       
    • The amount of securities of the issuer held by the person as of the 30th day before the filing of the registration statement
       
    • The amount of the securities covered by the registration statement to which the person has indicated an intention to subscribe
       
    • A description of any material interest of the person in any material transaction with the issuer or a significant subsidiary effected within the previous three years or proposed to be effected
       
    • The aggregate sum of the remuneration paid to those persons during the previous 12 months and estimated to be paid during the next 12 months, directly or indirectly, by the issuer and all predecessors, parents, subsidiaries and affiliates of the issuer.
       
    • All above information for a person owning on record or owning beneficially, if known, 10% or more of the outstanding shares of any class of equity security of the issuer
       
    • With respect to a promoter, if the issuer was organized within the previous three years, all information listed in the first five bullet points above and any amount paid to the promoter within that period, or intended to be paid to the promoter, and the consideration for the payment

Summary
Generally speaking, an issuer must provide the following:

  • Basic information: name, address, type of business and description
  • Records of officers, directors and owners with a stake of 10% (or more)
  • Description of issuer's long-term debt and capitalization
  • Type and amount of securities to be offered
  • Any/all stock options to be created in regards to the offering
  • Estimated proceeds
  • Copy of all red herrings, investment circulars or pamphlets for the offering
  • Sample copy of the security
  • Audited balance sheet of the issuer as of a date within four months before the filing of the registration statement
  • An income statement and statement of cash flows for three years prior to the balance sheet
  • A signed or confirmed copy of an opinion of counsel concerning the legality of the security being registered



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