According to the Securities Act of 1933, an issuer must register their offering of securities with the Securities and Exchange Commission (SEC) unless they qualify for an available exemption. If a security offering is exempt from SEC registration requirements, it is considered a private placement or unregistered offering, typically used interchangeably. At the Chawla Law Firm in Houston, we’re highly knowledgeable in Securities Law. Read on as we explain more about private placements and other unregistered offerings, then contact us for help in protecting your business investments.
Private Placements and Other Unregistered Offerings
Advantages of Unregistered Offerings
When it’s advisable to structure a security offering as an unregistered offering, there are several advantages that an issuer may be interested in:
Saves time and money — Registering offerings with the SEC can be a time-consuming and expensive process, but unregistered offerings avoid this.
Fewer disclosure requirements — Unregistered offerings have less specific disclosure requirements.
Public demand is not a factor — The success of unregistered offerings isn’t dependent on the economy or public demand.
Limited liability exposure — Issuers can avoid some SEC liabilities with unregistered offerings.
Registration Requirements for Offers and Sales
Unless an exemption applies, Section 5 of the Securities Act requires issuers to register an offer or the sale of its securities. Because of this, the SEC does not permit offers unless the issuer has filed a registration statement that covers the offer and sale of the securities. In addition, until the registration statement is effective, sales are not permitted.
Types of Registration Exemptions
The Securities Act allows two primary types of registration exemptions. The first is securities exemptions, which permit certain securities to be exempt from registration and freely resold without registration. The second type is transaction exemptions, which typically only apply to a specific unregistered transaction and do not exempt any future transactions of the same securities.
Unregistered Offering Examples
There are many different types of unregistered offerings, though two of the most common are equity and debt offerings, such as:
Equity securities offered by a private company to its founders and employees
Investment-grade debt securities offered by a company to its institutional investors