Registration by Qualification
Registration by qualification is the most comprehensive and burdensome method, but also the most flexible. Any security can use it, and no federal registration is needed.
Eligibility
- 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)
- Regulation A offerings
- Offerings that cannot use coordination or filing
Filing Requirements
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 |
Effective Date
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 concurrent with federal effectiveness. Qualification does not.