Exempt Transactions:
1. Reg A and A+: Small Businesses (Private Companies) can do Public Offerings
Exempt from SEC registration - small security offerings if they comply with Reg A
- Reg A: 12 months: 5M (total), 1.5M(secondary), SEC: Nah, Blue Sky: Hell Yeah;
- Reg A+ Tier 1: 12 months: 20M (total), 6M(secondary), SEC: Nah, Blue Sky: Hell Yeah;
- Reg A+ Tier 2: 12 months: 75M (total), 22.5M(secondary), SEC: Yeah (Semi-annual and Annual), Blue Sky: Nah;
In any case, inform SEC every six months how much you raised
2. 147 and 147A: Intra-State Offerings
147: 1974 Rule
- No restriction on the offering size and #investors
-
Resale after six months to outside state residents. First six months, resale only within the state
- Incorporated or Principal place of business (for partnerships) +
- Carry a significant amount of business within the state +
- Majority of employees within the state OR..
- 80% of Assets within the state OR..
- 80% of revenue from the state (past six months) OR…
- 80% of net proceeds will be used within the state
- Offer and sell securities only to the residents of the state
147A: Updated 2016 Rule
- Businesses can be incorporated anywhere. Now only Principal place of business counts
- Allows general solicitation, which original 147 doesn’t allow
- Rest everything same as 147
3. 144 and 144A:
- 144: Public resale of restricted or control securities
- 144A: Private Sale to QIBs (with more than USD 100M Discretionary Assets)
144:
- Restricted Stock (unregistered stock): Can be sold to pubic after six months (public issuer), and one year (for private issuer)
- Control Stock: In a 90 day period can sell max of (1% of outstanding shares, avg. weekly trading volume over past 4 weeks)
- Control Stock is stock held by an Affiliate of the company = Corporate Insider:
- Officer
- Director
- Investor with >10% voting share
- An Insider must file Form 144 prior to selling control stock. If the value of stock (90 day period) is less than USD 50,000 then don’t need to file Form 144
- Control Stock is stock held by an Affiliate of the company = Corporate Insider:
144A:
- Resale of unregistered securities among QIBs
- QIB (> USD 100 M Discretionary Assets); Broker Dealers: (> USD 10 M managing on a discretionary basis on behalf of others)
- No holding period under 144A as for restricted stock under 144
- Mostly used for issue of High-yield debt and pre-IPO shares
- Offering memorandum not required under 144A
- Eligible for piggyback registration
4. Reg D: Private Placement: Rule 504, 506, 506(c)
| Reg D Safe Harbor | 504 | 506(b) | 506(c) |
|---|---|---|---|
| Maximum Capital | $10 million | Unlimited | Unlimited |
| General Solicitation | Permitted | Prohibited | Permitted |
| Accredited Investors | Unlimited | Unlimited | Unlimited |
| Non-Accredited Investors | Unlimited | 35 | None Permitted |
| Filing Requirement | Form D | Form D | Form D |
- All non-accredited investors must be sophisticated. Else, they must be represented by a purchaser representative (often an attorney or a financial representative)
Bad Actors:
- Bad Actors are prohibited from doing a Reg D. Issuer or if anyone connected with the issuer is a bad actor, then no Reg D.
- This rule doesn’t apply to 504, and only to 506.
Bad Actors Classification:
- Criminal Offenses:
- Convicted of any felony in past 10 years.
- Convicted of any securities related misdemeanor in past 10 years.
- Regulatory Sanctions:
- Registration revoked by SEC or any SROs
- Any State Securities Commissioner barred from doing securities related activities.
- Court gave a securities related injunction in past five years.
- False Statements or Omissions:
- Lied on U4/U5
- Didn’t disclose your SD (Statutory Disqualification) history
- Industry Specific Triggers
- Caused expulsion of your firm from FINRA
- Failed to supervise that led to a violation
5. Reg S: US Issuers Securities offering outside US to non-US residents
- Not subject to US Registration requirements
- Person (whether US citizen or not) should reside outside the US
- People inside the US (whether US citizen or not) are not eligible
- Debt Securities: Can be sold to US investors after a holding period of 40 days
- Equity Securities:
- Current SEC Filers: Can be sold to US investors after a holding period of 6 months
- Non-Current SEC Filers: Can be sold to US investors after a holding period of 12 months
Rule 145: Reclassification
- Protect shareholders when company changes its ownership structure.
- Investors are essentially being offered new securities, and are thus entitled to same level of protection as if it were a new securities offering:
- Securities should be SEC registered
- Investors should get a prospectus
- Applicable in the following scenarios:
- Reclassification: Substituting one class of security with another
- M&A: Stock compensation
- Transfer of Assets: Stock compensation for sale of Assets
- NB: Stock splits and change in par value are not reclassification under Rule 145
Tender Offer:
- An offer to purchase at least 5% directly from shareholders
- Exchange Offer: A tender offer where compensation is stock instead of cash
- All holders best price concept
Investor Types:
Qualified Client:
-
USD 1.1 Mil AUM (with a particular RIA) or > 2.2 Mil Net worth
Qualified Purchaser: (Defined Under Investments Company Act, 1940)
-
USD 5 Mil individual/families/trusts, and Asset Managers > USD 25 Mil AUM
- Trust sponsored + managed by qualified purchasers (UPIA - Uniform Prudent Investor Act applies to the governance of trusts)
- Entity where all owners are qualified purchasers
Qualified Institutional Buyer:
-
USD 100 Mil Discretionary Assets. For Broker Dealers to be QIBs: > USD 10 Mil Discretionary Assets
Accredited Investors Individuals:
- Officers, Partners, and Directors (OPD) of the issuer automatically qualify
- Eligible for Reg D investments
| Criteria | Requirement |
|---|---|
| Net Worth | Over $1 million (excluding primary residence) |
| Annual Income | Over $200,000 (individual) or $300,000 (joint) for past 2 years, with expectation of same in current year |
| Professional Certification | Holder of Series 7, Series 65, or Series 82 license |
| Knowledgeable Employee of Private Fund | Must be investing in that specific fund |
Accredited Investors Entities:
| Entity Type | Requirement |
|---|---|
| Bank, Insurance Company, or Trust | Automatically qualifies if regulated |
| Corporation, Partnership, LLC, or Trust | Total assets over $5 million; not formed solely to invest |
| Entity Owned by Accredited Individuals | All equity owners must be accredited individuals |
| Family Office | Must have $5 million+ in assets and investment sophistication |
| Registered Investment Advisers, QIBs | Generally qualify based on registration or $100M+ in AUM |
Accredited Investors:
- Should have > USD 1 Mil Net Worth (Excluding Primary Residence),
- Institutions with a legitimate purpose that have atleast USD 5 Mil Assets
- Should have > 200k annual income (single), >300k annual income (married) in past 2 years, and reasonable expectation of the same income in the current year
- Bank, Insurance Company, Registered Investment Company, Business Development Company, Small Business Investment Company
- Employee Benefit Plan
- Charitable Organization
- Family Offices providing investment advice
- Trusts with a legitimate purpose that have atleast USD 5 Mil Assets
- Municipal and ERISA employee benefit plans
- Corporation or Partnership with > USD 5 Mil Assets
- Director/Officer/General Partner of the Issuer
- Business in which all the owners are accredited investors
- Trust with > 5 Mil Assets and not formed with the sole intent of investing in the Private Placement under question
- Investors with Series 7, Series 65, or Series 82 Qualification
- Knowledgeable employees of HF, PE, VC => but for investments only in their own fund
Forms to file with SEC:
| Form | Used For | Filed By | Key Contents | Trigger/Event |
|---|---|---|---|---|
| S-1 | IPO (Initial Public Offering) | Private company going public | Prospectus, financials, risk factors | First-time public offering |
| S-3 | Follow-on offering (seasoned issuers) | Public companies | Shelf registration, streamlined disclosure | Secondary or follow-on offerings |
| S-4 | M&A deals with stock/debt issuance | Acquirer (and target if public) | Proxy, prospectus, deal terms, pro formas | Stock-financed mergers or exchange offers |
| S-8 | Employee stock/benefit plans | Public companies | Securities for compensation plans | Stock/options granted to employees |
| F-1/F-3/F-4 | Foreign issuer versions of S-1/S-3/S-4 | Foreign private issuers | Same as above, but tailored to foreign filers | IPOs, follow-ons, M&A for non-U.S. firms |
Reg M-A by SEC:
Reg M-A = Regulation Mergers & Acquisitions
- It’s an SEC regulation that governs disclosures made in business combinations, such as:
- Mergers
- Tender offers
- Exchange offers
- Going-private transactions
- Other extraordinary corporate events
| Form | Used For | Who Files It | Reg M-A Applies? | Notes |
|---|---|---|---|---|
| S-4 | Registering securities in stock-based M&A | Acquirer | ✅ Yes | Includes proxy, prospectus, pro forma financials |
| Schedule TO | Making a tender or exchange offer | Acquirer | ✅ Yes | Discloses terms of offer |
| Schedule 14D-9 | Responding to a tender offer | Target company | ✅ Yes | Target’s formal position on the offer |
| Schedule 13E-3 | Going-private transactions | Company or affiliates taking it private | ✅ Yes | Protects minority shareholders |
| DEFM14A | Merger proxy for shareholder vote | Target or acquirer | ✅ Yes | Used when shareholder approval is needed |
WKSI (Well Known Seasoned Issuer) vs Seasoned Issuer vs Unseasoned Issuer:
| Feature | WKSI | Seasoned Issuer | Unseasoned Issuer |
|---|---|---|---|
| SEC Filing History | ≥ 12 months | ≥ 12 months | < 12 months OR not timely |
| Public Float | ≥ $700 million OR ≥ $1B in debt | ≥ $75 million | < $75 million |
| Form Eligibility | S-3 with automatic shelf | S-3 (but not automatic) | S-1 (long-form only) |
| Shelf Registration Effective? | Immediately (automatic shelf) | Only after SEC review and declaration | Not allowed (must file S-1) |
| Shelf Validity Period | 3 years | 3 years | Not applicable |
| Pay-as-you-go Filing Fees | ✅ Yes | ❌ No | ❌ No |
| Use of Free Writing Prospectus | ✅ Yes (before & after filing) | ✅ Yes (after filing only) | ❌ No |
| Marketing Flexibility | Maximum | Moderate | Minimal |
| bTypical Example | Apple, Microsoft, JPMorgan | Mid-cap public companies | Recent IPOs, early-stage filers |
Notes:
- Criminal actions against the company are declared in a 8K. Civil/class action lawsuits maybe not.
- During a merger 8K is filed atleast twice: When the definitive agreement is signed, and when the merger closes
Filing Categories:
- Large Accelerated Filers
- Accelerate Filer
- Non-accelerated filer
Corporate Insiders:
- File Form 3
Syndicate and Selling Group:
- Agreement among Underwriters (AAU)
- Selected Dealer Agreement
- POP and Underwriting Proceeds
Finer Points:
- Final Prospectus:
- 10 copies to be filed with the SEC prior to first use with the public
- Securities that can be offered at a discount:
- Treasuries + Munis + 1940 Act Companies
- IPOs are not offered at a discount. One price for everyone - POP Rule 168:
- Rule 168 is a provision under the Securities Act of 1933 that provides a safe harbor exemption for continued publication of regular business communications by reporting issuers Final Settlement of an IPO:
- Within 90 days of the issuer delivering the securities to syndicate members
- Syndicate manager to notify FINRA within 3 days of the deal becoming effective
- Reg M:
- Subject (being sold) + Reference (can be converted into subject) = Covered Security