DEFINITION of 'Exempt Transaction'

An exempt transaction is a type of securities transaction where a business does not need to file registrations with any regulatory bodies, provided the number of securities involved is relatively minor compared to the scope of the issuer's operations and that no new securities are being issued. In other words, an exempt transaction is a securities exchange that would otherwise have to register with the Securities and Exchange Commission (SEC), but does not because of the nature of the transaction in question.

BREAKING DOWN 'Exempt Transaction'

Exempt transactions cut down the amount of paperwork needed for relatively minor transactions. For example, it would be a big hassle to perform a filing with the SEC every time a non-executive employee wanted to sell back some of the company's common shares he or she purchased as part of an employee stock purchase plan.

Types of Exempt Transactions

A private placement or Reg D offering is a type of exempt transaction in which the securities are not offered to the public, but are instead sold privately to an accredited investor. According to the SEC, an accredited investor can be:

  • An insurance company, bank, business development company, small business investment company, or registered investment company
  • An employee benefit plan administered by a bank, registered investment company, or insurance company
  • A tax-exempt charitable organization
  • Someone with at least $1 million in net worth, excluding his or her primary residence
  • A person with more than $200,000 in income, or joint income of more than $300,000 with a spouse in both of the previous two years
  • An enterprise owned by accredited investors
  • A general partner, executive officer, or director of the company selling the securities
  • A trust with assets of at least $5 million, as long as it has not been formed just to buy the securities in question

Other types of exempt transactions include Reg A offerings, also known as small business company offerings, which permit the issuing company to raise no more than $5 million in a 12-month period. This allows smaller companies to access securities markets to raise capital. Rule 147 offerings, or intrastate offerings, are also exempt. Transactions with financial institutions, fiduciaries, and insurance underwriters may be considered exempt. Unsolicited orders, which are those executed through a broker at the request of his or her client, are also considered exempt.

RELATED TERMS
  1. SEC RW Filing

    This filing is made by companies which have already filed to ...
  2. SEC Form S-8

    A filing with the Securities and Exchange Commission (SEC) that ...
  3. SEC Form F-3

    SEC Form F-3 is required for the registration of certain securities ...
  4. SEC Form 1

    SEC Form 1 is an application for, or amendments to, registration ...
  5. SEC Form SB-2

    SEC Form SB-2 was a filing with the Securities and Exchange Commission ...
  6. SEC Form F-80

    A filing with the Securities and Exchange Commission (SEC) that ...
Related Articles
  1. Retirement

    Designating a minor as an IRA beneficiary

    Leaving an IRA to minors can be a complicated procedure. Make sure you understand how your gift will be distributed, managed and taxed.
  2. Taxes

    Are You Missing Out On These Tax Exemptions?

    To lower your tax bill, make sure that you're taking all the exemptions that apply to you.
  3. Investing

    The 4 Ways To Buy And Sell Securities

    Know the four main avenues of buying and selling investment instruments.
  4. Taxes

    How A Company Files With The SEC

    Filing with the SEC is not as complicated as you might thing -- just be meticulous about following the steps.
  5. Investing

    Brokerage Functions: Underwriting and Agency Roles

    Learning about underwriting and agency roles at a brokerage can give insight into how securities are issued and traded.
  6. Investing

    Understanding The Top SEC filing forms

    It's easier than ever to keep track of your SEC filing status online.
  7. Investing

    SEC Employees Enjoy Same Hefty Investment Returns as Insider Traders They Prosecute

    SEC employees are getting huge investment returns just like the companies they investigate for insider trading.
  8. Investing

    The Issuance Procedure of High-Yield Bonds

    The issuance of corporate high-yield bonds can have several advantages over equity. A closer look.
  9. Trading

    Principal trading and agency trading

    Ever wonder what happens behind the scenes when you buy or sell a stock? Read on to find out.
  10. Tech

    How Much Cheaper are Bitcoin Fees than Credit Card Fees?

    Bitcoin transaction fees are starting to rise as the network gets backlogged due to more usage, but are still much lower than typical credit card fees.
RELATED FAQS
  1. How long is the validity period for a Series 63 exam if I have not been registered?

    Find out how registration begins using Series 63 results and how long scores are valid without registration. Learn more about ... Read Answer >>
  2. What are unregistered securities or stocks?

    Before securities, like stocks, bonds and notes, can be offered for sale to the public, they first must be registered with ... Read Answer >>
  3. How does piggyback registration work?

    Registration rights ensure that companies cooperate during the registration process through which investors register shares ... Read Answer >>
  4. How do I register for the CFA program for the first time?

    Online registration is the quickest and easiest method to register with the CFA Institute. Read Answer >>
  5. How are asset management firms regulated?

    Find out how the asset management industry is regulated and how those regulations fit within the broader scope of financial ... Read Answer >>
Hot Definitions
  1. Financial Risk

    Financial risk is the possibility that shareholders will lose money when investing in a company if its cash flow fails to ...
  2. Enterprise Value (EV)

    Enterprise Value (EV) is a measure of a company's total value, often used as a more comprehensive alternative to equity market ...
  3. Relative Strength Index - RSI

    Relative Strength Indicator (RSI) is a technical momentum indicator that compares the magnitude of recent gains to recent ...
  4. Dividend

    A dividend is a distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders.
  5. Inventory Turnover

    Inventory turnover is a ratio showing how many times a company has sold and replaces inventory over a period.
  6. Watchlist

    A watchlist is list of securities being monitored for potential trading or investing opportunities.
Trading Center