Quick Answer
Registration by qualification is available to any security, with no eligibility restrictions and no federal registration required. It is the most burdensome method to file, requiring 17 categories of information, and the only method that becomes effective solely at the Administrator's order rather than automatically.
Qualification is the fallback method: whatever cannot use filing or coordination can always use qualification, because it has no eligibility gate. The price of that flexibility is the heaviest filing burden of the three methods.
Who Is Eligible for Registration by Qualification?
- Any security may be registered by qualification; there are no eligibility restrictions
- This is the only method that does not require a concurrent federal registration with the Securities and Exchange Commission (SEC)
- Used for offerings not registered at the federal level, including:
- Intrastate offerings (sold only within one state)
- Smaller Regulation A offerings that are not federal covered securities
- Offerings that cannot use coordination or filing
Exam Tip: Gotchas
Qualification is available to any security, including those that also happen to qualify for filing or coordination. A registrant is never forced into qualification unless no federal registration exists; where more than one method is available, the registrant chooses.
Not every Regulation A offering is a qualification candidate. The larger tier of Regulation A offerings is a federal covered security when exchange-listed or sold to a qualified purchaser, which takes it out of state registration entirely. Only a smaller Regulation A offering that is not federal covered can end up needing state qualification.
What Must Be Filed for Qualification?
Registration by qualification requires the most comprehensive filing of all three methods (17 categories of information):
| Category | Required Information |
|---|---|
| Issuer details | Name, address, form of organization, state/date of organization, business character and location, physical properties, competitive conditions |
| Officers and directors | Name, address, 5-year occupation history, securities holdings, subscription intentions, material transactions with issuer in past 3 years |
| Compensation | Aggregate remuneration paid and estimated for next 12 months to all directors/officers |
| 10%+ shareholders | Same information as officers/directors (except occupation) |
| Promoters (if organized within 3 years) | Same as officers/directors plus amounts paid and consideration |
| Non-issuer distributors | Name, address, holdings, material transactions, reasons for offering |
| Capitalization | Current and pro forma capitalization and long-term debt; description of all securities outstanding or being offered; consideration received for securities issued in past 2 years |
| Offering terms | Kind/amount of securities, proposed offering price, variations, underwriting discounts/commissions, finders' fees, other selling expenses, names of underwriters, copy of underwriting agreements, distribution plan |
| Use of proceeds | Estimated cash proceeds, purposes, amount per purpose, priority of use, other funding sources |
| Stock options | Description of all outstanding or to-be-created options; holdings by named persons and 10%+ option holders |
| Material contracts | Dates, parties, effect of management/material contracts; pending litigation materially affecting business |
| Sales literature | Copy of any prospectus, circular, advertisement, or sales literature intended for use |
| Legal documentation | Specimen of the security; articles of incorporation and by-laws; indentures; opinion of counsel on legality |
| Financial statements | Balance sheet (within 4 months of filing); profit/loss statements for 3 fiscal years (or period of existence); same for any business being acquired |
| Additional information | Whatever else the Administrator requires by rule or order |
When Does Registration by Qualification Become Effective?
This is the critical distinction:
- Registration by qualification becomes effective only when the Administrator so orders
- The Administrator has full discretion over when (or whether) to make the registration effective
- There is no automatic effectiveness and no tie to a federal registration
Exam Tip: Gotchas
Registration by qualification is the MOST BURDENSOME method (17 categories of required information) but also the MOST FLEXIBLE: any security can use it, and no federal registration is needed. The key exam trap: it becomes effective ONLY when the Administrator orders, NOT automatically. Filing and coordination both become effective automatically, and for coordination and filing's seasoned-issuer route that means concurrent with federal effectiveness. Filing's open-end fund and unit investment trust route is automatic too, but on its own clock (the business day of filing, or expiration of the existing registration, whichever is last), with no federal tie. Qualification is the only method that waits on the Administrator.
What Should You Check on Exam Day?
- Confirm the fact pattern has no federal registration in place; that is the signal for qualification.
- Do not assume qualification is automatic. It becomes effective only when the Administrator orders it, at the Administrator's full discretion.
- Recognize the 17-category filing list as the most comprehensive of the three methods, tied to no eligibility gate at all.
- Remember qualification is available to any security, unlike filing and coordination, which both require an underlying federal registration.