University:
Indiana University Bloomington
Course:
Financial and Managerial Accounting: Information for Decisions - John J. Wild
Academic year:

2024
Views:

150

Pages:

2
Author:

bratrochanter

This section further examines the communication, registration, and exemption rules under the Securities Act of 1933, focusing on various exemptions that allow issuers to bypass the burdensome registration process under specific conditions. 1. Communication Rules for Registered Offerings:   Three Offering Periods under Section 5 of the 1933 Act define permissible communication: o Pre-filing Period: No public communication about the offer to prevent early speculation. However, factual, non-promotional information is allowed under certain safe harbors (e.g., Rule 168 for factual updates). o Waiting Period: Communication is allowed with restrictions, including tombstone ads, oral offers, preliminary prospectuses, and live roadshows. Issuers may also provide a free-writing prospectus (with limitations) to give additional information. o Post-effective Period: Issuers may actively market and sell securities, as long as a final prospectus is delivered to the buyer. Roadshows: Live presentations are acceptable during the waiting and posteffective periods. Virtual roadshows are treated as written offers and must comply with free-writing prospectus rules. 2. Exemptions from Registration:  Registration can be costly and time-consuming, so certain exemptions allow issuers to offer securities without full SEC registration: o Securities Exemptions: Permanent exemptions for specific types of securities, such as government securities, short-term notes, non-profit securities, bank securities, and insurance products. These securities remain subject to anti-fraud provisions. o Transaction Exemptions: Exemptions for particular types of offerings, often requiring that subsequent sales adhere to new registration or exemption rules. Key transaction exemptions include:  Intrastate Offering Exemption (Rule 147): Available if an issuer and its investors are in the same state, and at least 80% of revenues, assets, and funds used are within that state.  Private Offering Exemption (Section 4(2) and Rule 506): Allows sales to accredited investors and sophisticated unaccredited investors who can assess the investment risks. It’s essential for issuers to provide detailed disclosures to ensure investors can make informed decisions. This exemption allows up to 35 unaccredited but sophisticated investors and an unlimited number of accredited investors. 3. Rule 506 Private Offerings:    Accredited Investors: Include institutions like banks or mutual funds and high-net-worth individuals. Unaccredited Investors: Must be sophisticated enough to evaluate the investment, capped at 35 under Rule 506. Disclosure Requirements: o Public companies must provide detailed information under the 1934 Act (e.g., annual reports). o Nonpublic companies must include financial disclosures, with the extent of audited statements varying based on the offering size. 4. Small Offering Exemptions:  Section 3(b) Exemptions (e.g., Regulation A): Exempts smaller offerings and aims to simplify the process for smaller companies looking to raise capital. Regulation A offers a streamlined alternative, but issuers must still file offering statements with the SEC. These exemptions and communication rules provide flexibility for nonpublic companies like L'Malle LLC to raise capital efficiently without the full registration process, ensuring compliance while minimizing costs.