NASAA Series 63Regulation of Securities and IssuersMedium
Promoters of a corporation not yet formed solicit subscription agreements from 9 prospective investors in the state. No commission is paid to anyone for soliciting subscriptions, and no payment is accepted from any subscriber prior to incorporation. This offering of preorganization certificates is:
- ANot exempt, because subscriptions were not registered by coordination
- BNot exempt, because more than 5 offerees were solicited
- CAn exempt transaction, because it meets the conditions of the preorganization certificate exemption
- DExempt only if the corporation later registers with the SEC
Show answer & explanationAnswer & explanation
Correct answer: C. An exempt transaction, because it meets the conditions of the preorganization certificate exemption
The preorganization certificate/subscription exemption applies when there are no more than 10 offerees in the state, no commission is paid for soliciting subscriptions, and no payment is received from any subscriber before incorporation. All three conditions are met here (9 offerees, no commission, no payment).
Why the other options are wrong
- A. Incorrect; exempt transactions require no registration process.
- B. Incorrect; the limit is 10 offerees, not 5, and 9 is within that limit.
- D. Incorrect; SEC registration is unrelated to this state-law exemption.
Preorganization Certificate Exemption
Offers of preorganization subscriptions are exempt if limited to no more than 10 offerees in the state, no commission is paid, and no payment is accepted from subscribers before incorporation.
- Maximum of 10 offerees in the state
- No commissions to solicitors
- No payment accepted prior to incorporation
Memory trick: Ten friends, no fees, no cash yet — exempt start-up.