Before securities such as stocks, bonds,and promissory notes can be offered for sale to the public, they must be registered with the Securities and Exchange Commission (SEC). Any security that is not formally registered with the SEC is unregistered and cannot be sold to the public unless it meets an exemption.

The most common exemption permits a corporation to issue shares of stock to its executives and board members. However, any new shareholders, beyond the initial executives and board members, must notify and get the consent of the SEC before selling their stock to a third party. See: Stock Legends.

Another exemption allows corporations to raise capital by soliciting investors outside the company who qualify as accredited investors.

Before buying, selling, or issuing unregistered securities, it is wise to consultant with a qualified business attorney since the penalties for violating SEC regulations are substantial, and the law is constantly charging and complex.

SEC Rule 144 provides an exemption and permits the public resale of restricted securities if a number of conditions are met, including how long the securities are held, the way in which they are sold , and the amount that can be sold at anyone time.

Form D is a SEC filing form used to file a notice of an exempt offering of securities under Regulation D of the Securities and Exchange Commission. Privately held companies that raise capital are required to file a Form D to declare the exempt offering of securities. More information is available on the SEC website.

Stock certificates are physical documents that represent a shareholder's ownership in a corporation. The corporation may be a public or private company. Stock certificates include information, including the number of shares owned, the date the stock certificate was issued, an identification number, sometimes a corporate seal, and an authorized signature which may be an electronic signature. Today, stock certificates are not always used by corporations. Stock ownership may be recorded electronically and maintained by the corporate secretary. The first stock certificates were issued in 1606 by the Dutch East India Company which was a public trading company.

A debenture is an unsecured debt instrument issued by a corporation that relies on the issuer's credit and reputation as opposed to collateral. Debentures are generally issued for ten year terms with interest payments made monthly. Debentures are a type of bond generally issued in $1,000 amounts. Debentures mayor may not be convertible into shares of the company.

 

Blue Sky Laws

Blue Sky Laws are state laws that require registration of securities and prohibit fraud to protect investors from speculative schemes and fraudulent investment practices. Unlike federal laws which apply nationwide, blue sky laws are specific to each state, having different requirements. Some exemptions may apply.

 

Loan Stock

Loan stock refers to common or preferred stock that is used as collateral to secure a loan from a financial institution or other party. The loan can be based upon either a fixed or adjustable interest rate. Lenders usually maintain physical control of the stock until the loan is repaid.

 

Going Private

Going private is the process of converting a public company into a private entity. The method of conversion may include a management buyout, a private equity buyout, or a tender offer. The conversion to a private company is usually the result of determining that being a public company no longer offers significant financial benefits. The conversion removes the company from all SEC reporting requirements and from any listings on public stock exchanges.

 

 

 

 

Unquoted Public Companies - Unlisted Public Companies

Offering Memorandum/Prospectus

Securities and Securitization

Restricted Corporate Stock

Non-Voting Stock

Stock Swaps

Warrants