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.

 

Marketable Securities

Marketable securities are unrestricted, highly liquid financial instruments such as common and preferred stocks, bonds or Treasury Obligations that can be rapidly bought or sold on public exchanges and converted into cash. They are classified as current assets on a balance sheet and serve as safe, interest-earning alternatives to holding idle cash.

 

Stock Split

A stock split is an action by the board of directors of a corporation that increases the number of shares by splitting the outstanding stock. This decreases the price per share while increasing liquidity. A stock split has no effect on the total market capitalization of the company or its value. Reverse splits are the opposite.

 

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.

 

Bearer Bonds

Bearer bonds are no longer legal in the United States because it is difficult for the IRS and state income tax authorities to track who is responsible for taxes on the interest income generated. Bearer bonds are legal in most other countries. They are unregistered, physical debt securities owned by whoever holds them, allowing for complete anonymity. They pay interest via attached coupons that are physically submitted. They are highly susceptible to fraud, money laundering, theft, and loss.

 

Zero-Coupon Bond

A zero-coupon bond is a fixed-income security that pays no regular interest (coupons) and is issued at a deep discount to its face value. The investor earns a return from the capital appreciation at maturity. Zero-Coupon bonds are also called discount bonds and accrual bonds. Common uses include planning for future, fixed cost, long-term goals such as paying for college tuition or retirement. Zero-Coupon bonds are commonly used as part of the consideration paid in connection with business acquisitions. Investors buy the bond for less than its face value(e.g., $600) and receive the full amount (e.g., $1,000) when it matures usually 10 years later. The profit is the difference between the purchase price and the face value. Even without cash interest payments, investors must pay taxes on annual imputed interest. Zero-coupon bonds are highly sensitive to interest rate fluctuations and, are subject to inflation risk.

 

 

 

Unquoted Public Companies - Unlisted Public Companies

Offering Memorandum/Prospectus

Securities and Securitization

Restricted Corporate Stock

Non-Voting Stock

Stock Swaps

Warrants