Exempt Securities (1933 Act)

The whole unit on one sheet: the exempt-security framework, both intrastate paths, and Regulation A's two tiers, with the thresholds the exam writes scenarios around.

The One-Liners That Win Points

• Exempt security = category-wide pass; exempt transaction = sale-specific pass. The security itself is registration-free vs a specific sale being registration-free. Regulation D (private placements) and Regulation S are exempt transactions and live in the NEXT unit.
• This unit's scope is exactly three paths: traditional intrastate safe harbor, modernized intrastate exemption, and Regulation A. Do not expand the scope when reviewing.
• None of the three paths files a Securities and Exchange Commission (SEC) registration statement (Form S-1). The two intrastate paths file nothing with the SEC; Regulation A files Form 1-A.
• Regulation A is "qualified," not "registered." The SEC issues a notice of qualification on Form 1-A.
• Traditional issuer-residence test = state of incorporation; modernized = principal place of business. This is the fix the modernized exemption was built for.
• Traditional bars out-of-state OFFERS; modernized allows out-of-state offers but bars out-of-state SALES. Both paths forbid out-of-state sales.
• The doing-business test needs only ONE of four alternatives: 80% of revenues, 80% of assets, 80% of net proceeds, or a majority of employees in-state.
• Regulation A qualified securities are freely tradable on qualification (no resale lock); the two intrastate paths lock resales to in-state residents for six months.
• The Tier 2 non-accredited investor cap is 10% of the GREATER of annual income or net worth, per offering. No cap for accredited investors; no cap at all in Tier 1.

Numbers to Lock In

Top Gotchas

• Three thresholds are 80%; the employees alternative is "majority" (more than 50%). Revenues, assets, and net proceeds all key off 80%; only the employee test uses majority.
• The four doing-business alternatives are alternatives, not cumulative. Fail the revenue test but pass the asset test and the issuer still qualifies.
• Out-of-state offers break the traditional safe harbor even without a sale; a public website reaching an out-of-state viewer disqualifies the whole offering. The modernized exemption fixes exactly this.
• The six-month resale lock starts at the issuer's sale, not at a later resale. A secondary buyer is locked in-state for the remainder of the six months, not for a fresh six.
• The Tier 2 cap is $75 million, not $50 million. Materials citing $50 million are pre-2021.
• The 10% investor cap applies ONLY to Tier 2 and ONLY to non-accredited investors, and it is 10% of the GREATER (not lesser) of income or net worth.
• Selling-securityholder sub-caps sit WITHIN the offering total, not on top of it. The $6 million and $22.5 million affiliate caps are part of the $20 million and $75 million totals.
• Filed Form 1-A means Regulation A; filed Form D means Regulation D (an exempt transaction, next unit), not an intrastate path.

The Exempt-Securities Framework

• The 1933 Act presumes registration: every offer or sale must register with the SEC unless it fits an exemption.
• Two buckets: exempt security (the security itself is registration-free, so issuer offerings, secondary sales, and resales all pass) vs exempt transaction (only the specific sale is registration-free; the security is restricted at the moment of sale).
• Common threads across all three paths: no S-1 filed; state Blue Sky law still applies in most cases; resale treatment varies (intrastate = six-month in-state lock, Regulation A = freely tradable on qualification).

Traditional Intrastate Offering Safe Harbor

• Issuer residence: the issuer is a resident of the state where it is incorporated (or organized, for a limited liability company (LLC) or partnership). State of incorporation controls, not operations.
• Doing-business test: satisfy any ONE of the four alternatives (80% revenues, 80% assets, 80% net proceeds, or majority of employees in-state).
• Offers AND sales must be in-state only. An out-of-state offer alone breaks the exemption; a general internet posting reaching out-of-state residents disqualifies the offering.
• Entity purchaser residence is its principal place of business; an entity formed just to acquire the securities triggers a look-through to its beneficial owners, all of whom must be in-state.
• Resale lock: in-state residents only for six months from the issuer's sale date; certificates carry a legend; an out-of-state resale in the window breaks the whole offering.
• No SEC filing at all; state Blue Sky registration is mandatory (the state runs the show).

Modernized Intrastate Offering Exemption

• Difference 1: out-of-state OFFERS are permitted (including internet and social media), so long as ALL sales are to in-state residents. Compliance moves from the offer side to the sale side (screen at purchase).
• Difference 2: the issuer-residence test is principal place of business, not state of incorporation. A Texas-headquartered Delaware corporation now qualifies for a Texas intrastate offering.
• Everything else mirrors the traditional path: same four doing-business alternatives, in-state-sales-only rule, six-month resale lock, no SEC filing, and state Blue Sky compliance.
• Selling to an out-of-state buyer breaks the exemption; the issuer must verify residency at the point of sale.

Regulation A

• Both tiers file a Form 1-A offering statement; the SEC reviews disclosure and issues a notice of qualification (no selling until qualified). "Qualified," not "registered."
• Bad-actor disqualification applies to both tiers: a covered person (including any 20%+ beneficial owner of voting equity) with a disqualifying event blows up the offering.
• Testing the waters is permitted both BEFORE and AFTER the Form 1-A filing; indications of interest are not binding.
• Tier 1: up to $20 million over 12 months, $6 million affiliate sub-cap, audited financials NOT required, state Blue Sky review applies (NASAA coordinated review available), no ongoing SEC reporting (Form 1-Z exit report only).
• Tier 2: up to $75 million over 12 months, $22.5 million affiliate sub-cap, audited financials required, National Securities Markets Improvement Act of 1996 (NSMIA) preemption from state registration (notice, fees, and anti-fraud stay), 10% non-accredited investor cap, ongoing reporting (Form 1-K annual, Form 1-SA semi-annual, Form 1-U current).
• NSMIA preemption is why Tier 2 dominates deal flow: it avoids multi-state merit review, worth more than the audit and reporting cost when selling across many states.

One-Breath Recap

The 1933 Act presumes registration, so an exempt security is the category-wide pass this unit covers on three paths: the traditional intrastate safe harbor tests the state of incorporation and bars out-of-state offers, while the modernized intrastate exemption tests the principal place of business and allows out-of-state offers, yet both forbid out-of-state sales, share the four doing-business alternatives (80% revenues, 80% assets, 80% net proceeds, or a majority of employees), and lock resales to in-state residents for six months. Regulation A files Form 1-A and is qualified, not registered, splitting into Tier 1 (up to $20 million, no audit, state Blue Sky review) and Tier 2 (up to $75 million, audited financials, NSMIA-preempted, 10% non-accredited cap, ongoing 1-K / 1-SA / 1-U reporting). Testing the waters is allowed before and after filing, and Regulation A securities trade freely on qualification unlike the intrastate six-month lock. Match the issuer profile to the threshold or carve-out it trips, and this narrow unit answers itself.

Need more than the recap? This is a condensed summary. If it is not enough, read the full Exempt Securities (1933 Act) unit for the complete lesson.