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 under the Uniform Securities Act: 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 federal registration with the Securities and Exchange Commission (SEC), although it may coexist with one
- Used for offerings not registered at the federal level, including:
- Intrastate offerings (sold only within one state)
- Regulation A Tier 1 offerings that are not independently federal covered
- 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. Tier 2 offerings are federal covered because the federal rule automatically treats their purchasers as qualified purchasers. Tier 1 status does not itself confer covered status, but another category, such as qualifying exchange listing, may independently do so. A Tier 1 offering needs a state method only if it lacks covered status and an applicable exemption.
The Act itself does not require the qualification financial statements to be audited. The Administrator may separately require, by rule or order, that any financial statement filed under the Act be certified by an independent or certified public accountant, but that is a discretionary Administrator power, not a built-in qualification filing element.
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 |
| Security and governing documents | Specimen of the security; articles of incorporation and by-laws; indentures or other instruments covering the security |
| Legal opinion | Signed or conformed counsel opinion on lawful issuance, full payment, and non-assessability; for debt, that it is a binding issuer obligation |
| Expert consent | Written consent of a named accountant, engineer, appraiser, or other authoritative professional whose prepared or certified report or valuation is used; public official documents or statements are excepted |
| Financial statements | Balance sheet dated within 4 months before filing; profit-and-loss statements and analyses of surplus for the preceding three fiscal years and the interim period through the balance-sheet date, or the issuer's and predecessors' existence if shorter; same statements for a 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
- No time on file and no federal event makes it effective; the Act ties effectiveness to the Administrator's order alone
- There is no automatic effectiveness. Even if a federal registration exists, qualification becomes effective only by the Administrator's order
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 so orders.
- 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.