Quick Answer
The Securities Act of 1933 defines security, issuer, underwriter, prospectus, and offer broadly so few transactions escape its reach. Once an instrument is a security, the registration requirement makes it unlawful to offer it before a registration is filed, to sell it before that registration is effective, and to deliver it without a compliant prospectus.
These five definitions are the gate the whole exam sits behind. Almost every private-placement question assumes the instrument in front of you is already a security and asks who counts as the issuer, the underwriter, or a person making an offer.
Which Terms Decide Whether the Securities Act Applies?
| Term | What It Covers |
|---|---|
| Security | A note, stock, bond, debenture, investment contract, and similar instruments, defined broadly |
| Issuer | The person who issues, or proposes to issue, a security |
| Underwriter | A person who purchases from an issuer with a view to distributing the security, or who otherwise takes part in its distribution. Excludes a person whose interest is limited to a usual and customary selling commission paid by an underwriter or a dealer |
| Prospectus | Any notice, circular, advertisement, letter, or communication, written or by radio or television, that offers a security for sale or confirms its sale |
| Offer (offer to sell, offer for sale) | Every attempt or solicitation to dispose of a security for value, not only a completed sale. Excludes preliminary negotiations between an issuer and an underwriter, or among underwriters in privity with the issuer |
If an instrument fits the security definition, the Securities Act applies to it unless a specific exemption removes that instrument, or that sale of it, from coverage. The issuer is the party whose offering must either be registered or fit an exemption.
Exam Tip: Gotchas
- "Offer" reaches solicitation, not only a completed sale. A phone call pitching an investment before any registration is filed can already violate the registration requirement, even though no security has changed hands.
What Does the Registration Requirement Actually Prohibit?
The registration requirement is really three separate prohibitions that apply at different points in an offering's life:
| Phase | Offers | Sales | Prospectus and Delivery |
|---|---|---|---|
| Before a registration statement is filed | Not permitted | Not permitted | Not applicable |
| After filing, before the registration is effective | Permitted | Not permitted | A preliminary prospectus may be used |
| After the registration is effective | Permitted | Permitted | A final prospectus must accompany or precede delivery |
Think of it this way: Filing unlocks the right to start talking about the deal. Effectiveness unlocks the right to actually close it. Between those two events, the deal team can send out a preliminary prospectus, but no money or shares can change hands until the registration is effective.
Exam Tip: Gotchas
- The offer prohibition is broader than the sale prohibition. An issuer with no registration statement on file and no exemption violates the registration requirement the moment it solicits interest in an offering, even if no security ever changes hands.
- Filing is not the same as effectiveness. Filing permits offers and a preliminary prospectus; only effectiveness permits an actual sale.
An issuer that has filed nothing and has no exemption may not lawfully offer the security, let alone sell it. Once it has filed, it may offer but still may not sell until the registration is effective. The rest of this unit is about the exemptions that let a private offering proceed without going through this process.
What Should You Check on Exam Day?
- Confirm whether a fact pattern describes an offer, a sale, or a delivery, since the registration requirement treats each one differently.
- Check whether a registration statement has been filed, is pending effectiveness, or is already effective before deciding what activity is lawful.
- Remember that soliciting interest before any filing is itself a violation, regardless of whether a sale ever closes.
- Distinguish the broad security definition from a specific exemption; being a security does not by itself mean registration is required.