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Plan of Distribution
The SEC, under Item 508 of Regulation S-K, requires companies permitting directors or officers, other than underwriters, to sell securities to prepare a Selling Stockholder Registration Statement and list the names of these individuals. The SEC also requires disclosure of a fixed initial stock price per share. However, the fixed price is only required until a company begins to quote shares on the OTC bulletin board and receives a ticker symbol, generally weeks after the filing clears. After this point, a company can change its stock price. The price a company quotes at is usually the price of initial sale but can be negotiated with the Market Maker when a company files a 211 with the Financial Industry Regulatory Authority (FINRA). Registrants must be aware that stocks placed on the OTC bulletin board are being quoted and not listed because the OTC bulletin board is not a national securities exchange permitted under federal securities laws. If a company intends to initiate a Direct Public Offering (DPO) to raise money, the shares are permitted to be sold by a company’s officers and directors. To avoid having to register as a broker/dealer, a company must comply with the SEC’s special rule permitting it to do so. Under this rule, the SEC permits officers, directors, and other employees designated as “associated persons,” to sell securities without registering as a broker/dealer under the following criteria: • Individual has not been found guilty of statutory disqualifications • Individual is not compensated from commissions directly or indirectly from security transactions and meets the following conditions: associated person performs or is intended to perform at the end of the offering duties for or on behalf of the issuer selling the securities; associated person was not a broker or dealer within the preceding 12 months and did not participate in selling an offering of securities for any issuer more than once every 12 months other than as it pertains to this rule; The associated person must also abstain from the following activities: o Soliciting sales through written means or mail service, solicitation must be verbally o Responding to inquires by a potential purchaser after potential purchaser has initiated contact. However, responses are permitted if limited to information contained in a registration statement filed under the Securities Act of 1933 o Performing clerical work involved in effecting a transaction No officer, director, or employee participating in a securities offering may be paid a commission or receive special compensation. |
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