Exclusions from the Agent Definition
Before diving into what agents must do, you need to understand who is NOT an agent in the first place. The Uniform Securities Act (USA) builds certain exclusions directly into the definition of "agent" under Section 401(b).
Exclusion vs. Exemption
This is a key distinction the exam tests:
| Concept | Meaning | Registration? | Antifraud? |
|---|---|---|---|
| Exclusion | The person does NOT meet the definition of "agent" at all | Never required | Still applies |
| Exemption | The person IS an agent but is relieved from the obligation to register | Waived | Still applies |
- An exclusion means the registration requirement never applies because the person falls outside the definition entirely
- An exemption means the person meets the agent definition but gets a pass on registration
- Either way, the person remains subject to the antifraud provisions of USA Section 101
Exam Tip: Gotchas
Whether a person is excluded or exempted, the antifraud provisions ALWAYS apply. No one gets a free pass to commit fraud.
Individuals Representing Issuers Who Are NOT Agents
An individual who represents an issuer is excluded from the agent definition if the individual is involved in any of the following:
| Exclusion | USA Reference | Details |
|---|---|---|
| (A) Exempt securities | Section 402(a)(1), (2), (3), (10), (11) | Transactions in government securities, bank securities, credit union securities, nonprofit organization securities, or securities issued by regulated public utilities |
| (B) Exempt transactions | Section 402(b) | Transactions exempted under Section 402(b) (for example, isolated non-issuer transactions or fiduciary transactions) |
| (C) Federal covered securities | SA 1933, Section 18(b)(3) and 18(b)(4)(D) | Transactions in securities listed on a national exchange or authorized for listing, or sold to qualified purchasers |
| (D) Existing employees, partners, or directors | Section 401(b) | Transactions with existing employees, partners, or directors of the issuer, but only if no commission or other remuneration is paid or given directly or indirectly for soliciting any person in the state |
The Employee/Director Exclusion: The "No Commission" Condition
Exclusion (D) is the most heavily tested. The key condition is:
- The individual must be transacting with existing employees, partners, or directors of the issuer
- No commission or other remuneration can be paid or given (directly or indirectly) for soliciting purchases
- If the issuer pays the individual any form of compensation tied to soliciting purchases, the exclusion is destroyed
Exam Tip: Gotchas
An officer of a company who sells the company's stock to fellow employees is NOT an agent, provided the officer receives no commission or remuneration for the solicitation. If the company pays the officer a bonus for each employee who purchases shares, the exclusion is lost and the officer must register as an agent.
What counts as "remuneration for soliciting":
- Commissions per sale
- Bonuses tied to the number of employees who purchase
- Finder's fees
- Any extra compensation beyond regular salary linked to solicitation
What does NOT destroy the exclusion:
- Regular salary (not tied to solicitation)
- Standard employee benefits
Individuals Representing Broker-Dealers Who Are NOT Agents
The exclusion for broker-dealer (BD) representatives is much narrower:
- An individual representing a broker-dealer is excluded from the agent definition only if the individual's transactions in the state are limited to those described in Section 15(h)(2) of the Securities Exchange Act of 1934 (SEA)
- Section 15(h)(2) of the SEA covers clerical and ministerial activities that do not constitute acting as a broker (for example, accepting unsolicited customer orders for processing by a registered person)
- This is a very limited exclusion. Most individuals who represent a BD in effecting securities transactions must register
Partners, Officers, and Directors
A partner, officer, or director of a broker-dealer or issuer (or a person performing similar functions) follows special rules:
- They are an agent only if they otherwise come within the definition, meaning they must actually be involved in effecting or attempting to effect securities transactions
- A director who only attends board meetings and has no involvement in securities transactions is NOT an agent
- A director who also solicits customer orders IS an agent
The automatic registration shortcut:
- Under USA Section 202(a), registration of a broker-dealer automatically constitutes registration of any agent who is a partner, officer, or director
- So if a director IS an agent, the BD's own registration automatically covers that director. No separate agent registration filing is needed
Exam Tip: Gotchas
A director of a broker-dealer who has no involvement in effecting securities transactions is NOT an agent and does not need to register. But a director who also solicits customer orders IS an agent, though the BD's own registration automatically covers that director's agent registration.