Understanding Securities Law
The business professional's guide to securities laws
 

The basic federal law governing the sale of securities is the Securities Act of 1933. I call this the “Selling Stock” Act.

Registration

The principal section of the 1933 Selling Stock Act that relates to the sale of your company’s stock if you file a Registration Statement with the SEC is:

• Section 5: You have to register your stock with the SEC in order to sell your stock unless there is an exemption available in another section of the 1933 Selling Stock Act. The stock you register is free trading, meaning unless otherwise restricted by SEC Rules, the stock can be sold free and clear of any resale restrictions imposed by SEC rules.

Why file with the SEC under Section 5:

An SEC registration statement give you Registered Securities that are generally “free trading,” meaning that they can be resold by the purchaser free and clear of any SEC transfer restrictions if the purchaser is not an insider of the company.

Shares owned by insiders, meaning officers, directors and control persons, called affiliates, of the company however are never free trading, even if purchased in a public offering.

Filing a Registration Statement lets you get a Ticker Symbol for your stock so it can trade on the OTCBB or a higher exchange like Amex or NASDAQ.

Exemption

The principal section of the 1933 Selling Stock Act that relates to the sale of your company’s stock if sell under an exemption so you don’t have to file a Registration Statement with the SEC is:

• Section 4: Stock sold under a Section 4 exemption is restricted and not free trading for all resales, meaning the stock can be cannot be resold unless the resale is exempted by other SEC rules.

Why sell your stock under an exemption:

Although the shares you sell aren’t free trading for a year and you don’t qualify to you get a Ticker Symbol for your stock so it can trade on the OTCBB or a higher exchange like Amex or NASDAQ, a Private Placement is generally cheaper and faster that filing a Registration Statement with the SEC.