Securities Act Framework and Offering Types

Every exemption later in this chapter is an exception carved out of the framework on this page.

Which One-Liners Win Points?

• Five definitions gate the statute. An underwriter buys from an issuer with a view to distribution, excluding one taking only a usual and customary selling commission. A prospectus is any communication offering a security or confirming its sale, and an offer is every attempt or solicitation to dispose of one for value.
• Three phases. Before filing, no offers and no sales. Filed but not effective, offers and a preliminary prospectus only. Effective, sales permitted with a final prospectus accompanying or preceding delivery.
• An exempt security stays outside registration permanently, resales included: government and bank securities, qualifying short-term commercial paper, and insurance and annuity contracts.
• Commercial paper qualifies only if it arises out of or funds a current transaction and matures in nine months or less at issuance, days of grace excluded. Short maturity alone is not enough.
• An exempt transaction exempts one sale only: an issuer's non-public offering, ordinary trading by someone who is not an issuer, underwriter, or dealer, and most dealer transactions after a distribution.
• Five classes fill a private offering: equity, debt, convertible security, warrant, and unit. A convertible is exchanged, surrendering the original instrument; a warrant is exercised for cash; a unit is a bundle, not a sixth class.
• A primary offering sells newly issued securities with proceeds to the issuer; a private placement is a primary offering that is exempt. A private investment in public equity (PIPE) is a private placement by an issuer already reporting under the Exchange Act.
• A placement agent soliciting or effecting sales is acting as a broker and must register with the Securities and Exchange Commission (SEC).

Which Numbers Matter Most?

Which Gotchas Trip Students Up?

Exam Tip: Gotchas

• The offer prohibition is broader than the sale prohibition. A pitch call with nothing on file and no exemption breaks the rule.
• Exempt security and exempt transaction are not interchangeable. A private placement exempts the issuer's own sale, and the restricted security it produces still needs an exemption or a registration to be resold.
• Regulation D does not rest on one statutory basis. Its uncapped private placement safe harbor sits under the private-offering exemption, while its small-offering exemption, like Regulation A, traces to the SEC's small-issue rulemaking authority.
• Primary is not registered, and reporting status registers nobody's resale. The word public in PIPE names the issuer's reporting status; the investor holds a restricted security until the issuer's separate resale registration statement is effective.
• Rescission liability carries no reasonable-care defense. It turns on whether the registration requirement was violated, not on disclosure quality. Material-misstatement liability turns on the truth of what was said, does carry that defense, and reaches exempt securities.

One-Breath Recap

The Securities Act defines security, issuer, underwriter, prospectus, and offer broadly, then splits an offering into three phases: no offers or sales before filing, offers and a preliminary prospectus once filed, and sales only once effective. An exempt security escapes registration permanently, while an exempt transaction exempts one sale and leaves the buyer holding a restricted security, which is why an issuer's public reporting status does not register its investors' resales. Selling without registration or an exemption brings rescission with no reasonable-care defense, and a material misstatement brings a separate liability that does have one.

Need more than the recap? Read the full Securities Act Framework and Offering Types unit.