Registration: Definition, Steps, SEC Rules

What Is Registration?

Registration is the process by which a company files required documents with the Securities and Exchange Commission (SEC), detailing the particulars of a proposed public offering. The registration typically has two parts: the prospectus and private filings. The prospectus is a document given to every investor that purchases the security while the private filing is information given to the SEC for inspection.

Key Takeaways

  • Registration is the process by which a company files required documents with the SEC before an initial public offering (IPO).
  • The two components that make up registration are the prospectus for investors and private filings for the SEC.
  • Registration consists of significant detail regarding the offering, such as the price, date, financial statements, and legal problems.
  • The term "registration" also refers to when a broker-dealer files the appropriate documentation to be legally able to sell securities.

Understanding Registration

The process of an initial public offering (IPO) is a long and complex one, requiring many months of work and tremendous amounts of documentation. When registering for an IPO, a company issuing shares must reveal essential facts and detailed information about its business during the registration process.

This type of information includes a description of its business and assets, a description of the security being offered, further details of the offering, a description and names of the company's management, and the company's financial statements, which have been certified by an accountant, working independently of the company.

The SEC specifies that a company should have at least three years of audited financial statements before it can go public. If a company does not have three years of audited financial statements, the SEC allows for exceptions whereby the company is allowed to provide them after the fact, when they actually have the required information available. An auditor would perform a look back, and the company would have to ensure it has systems in place for capturing this information.

The registration is also meant to include any negative information, such as legal problems or other business trouble that would be of great consequence to investors. The purpose of registration is to be above board with all the details of the company.

The prospectus provides a summary of the company's share offering to the investors, including the size, what the funds raised will be used for, and contact information for the company. A preliminary prospectus is the first offering document that a security issuer must issue. This is often known as the red herring document. The final prospectus contains finalized information, including the exact number of shares/certificates issued and the precise offering price, which are printed after the deal has been made effective.

Once the registration information has been provided to the SEC, the SEC will conduct a review of the information, provide comments, and request any changes if necessary. The SEC usually responds back within 30 days after the initial registration has been filed.

Some securities are exempt from the SEC's registration process. These include limited and private offerings as well as municipal, state, and federal security offerings.

Registration for Brokers and Dealers

Registration is also a process by which securities brokers or dealers become legally entitled to sell securities. To have the authority to sell securities, broker-dealers must file forms, such as Form BD. This form requires disclosures of background information, including management policies, the names of executives and general partners, information about the company’s successors, and any current legal proceedings and/or previous securities violations. Form BD is covered under Section 15 of the Securities Exchange Act of 1934.

A broker or dealer must already be a member or must become a member of a self-regulatory organization (SRO), such as the National Association of Securities Dealers (NASD). They must also register with the state or states in which they intend to sell securities (if such state laws require them to do so). Finally, the prospective broker and/or dealer must become a member of the Security Investor Protection Corporation (SIPC).

Not every person working for a securities dealer, broker, or investment bank must be registered in order to conduct business, but the requirements are very stringent, by necessity. If you are thinking about selling securities or working for an investment bank as a career, it is best to check with the relevant authorities in your jurisdiction to ensure that you have fully complied with all the relevant laws governing the sale of securities.

Article Sources
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  1. U.S. Securities and Exchange Commission. "What Is a Registration Statement?" Accessed Oct. 7, 2021.

  2. U.S. Securities and Exchange Commission. "Financial Reporting Manual." Accessed Oct. 7, 2021.

  3. U.S. Securities and Exchange Commission. "Registration Under the Securities Act of 1933." Accessed Oct. 7, 2021.

  4. U.S. Securities and Exchange Commission. "Uniform Application for Broker-Dealer Registration," Accessed Oct. 7, 2021.

  5. U.S. Securities and Exchange Commission. "Broker Dealer Registration: Where to File." Accessed Oct. 7, 2021.

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