NASAA Series 63Regulation of Securities and IssuersMedium
A corporation offers rights to purchase additional shares to its existing shareholders on a pro rata basis, and no commission is paid for soliciting the exercise of these rights. Under the Uniform Securities Act, this offer is:
- ANot exempt, because rights offerings always require registration by qualification
- BExempt only if registered by coordination first
- CAn exempt transaction because it is offered only to existing security holders without commission
- DNot exempt, because it constitutes the offering of a new class of security
Show answer & explanationAnswer & explanation
Correct answer: C. An exempt transaction because it is offered only to existing security holders without commission
Offers to existing security holders of the issuer (such as rights, warrants, or convertible securities) are exempt transactions under the Uniform Securities Act, provided no commission is paid for soliciting the exercise of the rights.
Why the other options are wrong
- A. Incorrect; qualification is not automatically required for rights offerings.
- B. Incorrect; exempt transactions do not require prior registration.
- D. Incorrect; new share issuance to existing holders is precisely what this exemption covers.
Existing Security Holder Exemption
Offers of rights, warrants, or convertible securities to a corporation's existing security holders are exempt transactions if no commission is paid.
- Must be offered pro rata to current holders
- No commission paid for soliciting exercise
- Distinct from a public offering exemption
Memory trick: Loyal shareholders get first dibs, fee-free.