Quick Answer
The Securities Act lists classes exempt from registration based on issuer type, including US government, bank, commercial paper, nonprofit, and municipal securities. The intrastate-offering exemption plus its two safe harbors require an 80% in-state doing-business test. Exempt from registration never means exempt from antifraud liability under the antifraud and civil-liability provisions.
Some securities are exempt from Securities Act (SA) registration not because they qualify for a private-placement exemption (Reg D) but because of the type of issuer or the scope of the offering. The exempt-class provisions list the most important of these categories. This section also covers the intrastate-offering exemption and its two modern safe harbors.
Which securities are exempt from registration based on issuer type?
The Securities Act lists classes of securities that are exempt from SA registration regardless of how they are offered. The key categories tested on Series 6:
| Class | Exempt Securities |
|---|---|
| Government and bank-issued | US government securities, agency securities, bank-issued securities, securities of certain public instrumentalities |
| Short-term commercial paper | Commercial paper with maturities of 270 days or less used for current transactions |
| Nonprofit-issued | Securities issued by non-profit, religious, educational, benevolent, or charitable organizations |
| Savings-institution-issued | Securities issued by savings and loans and building and loan associations |
| Intrastate | Intrastate offerings (detailed below) |
| Municipal | State and local government securities |
| Holding-company reorganization | Equity securities issued in a bank or savings-association holding-company reorganization |
Is an Exempt Security Also Exempt from Antifraud?
Securities exempted by class remain fully subject to the antifraud provision covered in Topic 7. Fraud is never exempt.
The civil-liability provision for material misstatements in prospectuses and oral communications is narrower. It reaches securities exempted by class except the government, municipal, and bank securities group. Those sit outside that particular remedy.
Exam Tip: Gotchas
- Exempt from registration is NEVER exempt from antifraud. A false statement in a commercial paper offering, a municipal bond sale, or a charity bond is still actionable under the antifraud provision.
- Do not extend that to the civil-liability provision. Government, municipal, and bank securities are carved out of that remedy, even though antifraud still covers them. A question that offers "both antifraud and civil liability" for a municipal bond is testing exactly this split.
What does the intrastate offering exemption require?
The statutory intrastate exemption covers offerings conducted entirely within a single state. The theory is that local financing can be overseen by the state rather than the SEC.
Requirements for the statutory intrastate exemption:
- The issuer must be organized in the state where the offering occurs
- A significant amount of business must be conducted in that state
- All offers and sales must be made only to residents of that state
Why Is the Intrastate Exemption an All-or-Nothing Test?
The statutory intrastate exemption is an all-or-nothing test. A single out-of-state offer or sale can destroy the entire exemption for every purchaser, converting the whole offering into an unregistered public offering.
Exam Tip: Gotchas
- The statutory intrastate exemption and its safe harbor are all-or-nothing. Even ONE out-of-state sale (or one out-of-state offer under the safe harbor) destroys the entire exemption. Contrast with Reg D's insignificant-deviation provision, where minor errors may be forgiven for the individual purchaser. Intrastate offers do NOT get the same grace.
What are the safe harbor requirements for intrastate offerings?
The original intrastate-offering safe harbor is an objective safe harbor that gives bright-line tests for compliance with the statutory intrastate exemption.
What Does the 80% Doing-Business Test Require?
The issuer must meet at least one of these in-state benchmarks:
- 80% of revenues from in-state operations
- 80% of assets located in-state
- 80% of net proceeds used for in-state operations or real property
- A majority of employees based in-state
Exam Tip: Gotchas
- The issuer needs only ONE of these tests, not all of them. Meeting any single benchmark (for example, 80% of assets in-state, even if most revenues come from out of state) satisfies the doing-business requirement. Note the employee alternative is a majority of employees in-state, not 80%.
Who May Buy Under the Intrastate Safe Harbor?
- All offerees AND purchasers must be in-state residents
- Any offer made to a single out-of-state resident destroys the safe harbor
How Long Must Purchasers Wait Before Reselling?
- Purchasers may not resell to out-of-state persons for 6 months from the last sale by the issuer
- Certificates must carry appropriate legends disclosing the resale limitation
How does the modernized intrastate-offering rule differ from the original safe harbor?
A modernized intrastate safe harbor accommodates modern communication channels (the internet).
| Feature | Original Safe Harbor | Modernized Alternative |
|---|---|---|
| Offers to out-of-state residents | Prohibited | Permitted (including via internet) |
| Sales to out-of-state residents | Prohibited | Prohibited |
| Issuer incorporation | Must be in-state | May be out-of-state if principal place of business is in-state |
| 6-month resale limit | Applies | Applies |
| 80% doing-business test | Applies | Applies |
Exam Tip: Gotchas
- The modernized safe harbor allows OFFERS to out-of-state residents, but SALES must still be only to in-state residents. The internet-age distinction: an issuer can market broadly, but only state residents can buy. The original safe harbor is stricter and blocks even out-of-state offers.
Think of it this way: Under the original safe harbor, an issuer that published anything online about its intrastate offering risked losing the exemption because strangers out of state could see it. The modernized alternative fixed that by separating who can see the ad (anyone) from who can buy (in-state residents only).
What Should You Check on Exam Day?
- Can you state that exempt securities remain subject to the antifraud provision, but government, municipal, and bank securities are carved out of the civil-liability provision?
- Do you know the statutory intrastate exemption is all-or-nothing, so even one out-of-state offer or sale destroys it?
- Can you name at least one of the four 80% doing-business tests, such as in-state revenues, assets, or net proceeds?
- Do you know purchasers under the intrastate safe harbor cannot resell to out-of-state persons for 6 months from the issuer's last sale?
- Can you state the key modernized safe harbor difference: offers to out-of-state residents are permitted, but sales are still restricted to in-state residents?