Chapter 1 - Public and Private Offerings Flashcards
Primary purpose of the Securities Act of 1933
Provide investors with full and fair disclosure regarding new issues (prospectus)
True or False: The SEC judges an offering’s investment merit and provides approval.
False
True or False: Blue-Sky Laws apply to broker-dealers and agents operating within a state
True
For how long may a new issue be sold under a shelf registration?
Up to 3 years
True or False: Shelf Registration gives flexibility to the issuer by allowing delayed or continuous sales.
True
The holding period for unregistered (restricted) securities under Rule 144 is __________.
6 Months
Once Form 144 is filed, owners have __________ to sell their securities.
90 Days
QIB stands for ___________________________.
Qualified Institutional Buyer (QIB)
QIBs are financial institutions that have at least $_________________ invested in securities of non-affiliated issuers.
$100 million
Rule 144A exempts sellers from the holding period and volume limitations of Rule 144 if trading is done with a _____.
QIB
What business structure features double taxation at both the corporate rate and the owner’s personal rate?
C Corporation
The SEC will issue a ____________________ to indicate that a registration statement is inadequate.
deficiency letter
If a completed registration must be amended, when will it become effective?
Upon SEC declaration
For how long must a prospectus be made available in the secondary market for an exchange-listed IPO?
25 days
What is a company that has less than $25 million in revenue and outstanding shares valued at no more than $25 million?
Small business issuer
What form is used by a small business seeking to raise $10 million or less?
Form SB-1
An issuer with $700 million outstanding voting shares would be placed in what category?
Well-Known Seasoned Issuer (WKSI)
An issuer with $75 million outstanding voting shares would be placed in what category?
Seasoned Issuer
What document may a Well-Known Seasoned Issuer (WKSI) use to communicate with potential investors?
Free writing prospectus
True or False: A free writing prospectus may be published only after a registration statement has been filed.
False
What provision in securities law restricts certain types of communication during the offering?
Gun Jumping
Shelf Registration is valid for up to _____ years.
3 Years
What is the maximum amount of proceeds selling shareholders may receive through a Regulation A offering?
$1.5 million
The maximum number of non-accredited investors in a Reg. D offering is _____.
35
A Purchaser Representative for a non-accredited investor may be an officer of the issuer if ________________________.
related to the purchaser.
U.S. companies may issue securities abroad and claim an exemption from registration under what provision?
Regulation S
What amount of time must elapse before equity securities issued under Regulation S may be resold into the U.S.?
1 year
What amount of time that must elapse before debt securities issued under Regulation S may be resold into the U.S.?
40 days
True or False: ADRs can be quoted on the NYSE, Nasdaq, the OTCBB, or the Pink Sheets.
True
What business structure provides flow-through tax treatment and has a P&L reported on the owner’s personal tax return?
An S Corporation
Accredited investors have net worth of at least $_________ or pre-tax income in each of the last two years of $________.
$1 million net worth, $200k pre-tax income
True or False: C Corporations and limited liability companies (LLCs) allow for an unlimited number of shareholders.
True
An S Corporation is allowed a maximum of ____ shareholders.
100
How is the taxation of income for S Corporations and LLCs identical to that of a partnership?
Federal tax is avoided by passing through income and loss to shareholders (no double taxation).
How many classes of stock may be issued by C Corporations and limited liability companies (LLCs)?
Both may issue multiple classes of stock.
What is an ownership characteristic of S Corporations, C Corporations, and limited liability companies (LLCs)?
Limited liability for the owners
How are C Corporation profits taxed?
At both the corporate and shareholder level (double taxation)
True or False: S Corporations may be foreign corporations with multiple classes of stock.
False. S Corporations must be domestic corporations with only one class of stock.
For tax purposes, S Corporations and limited liability companies (LLCs) are ______________ investments.
Pass through
True or False: Flexible management structure is a characteristic of a limited liability company (LLC).
True
In what does a real estate investment trust (REIT) invest?
A diversified portfolio of properties and/or mortgages
A REIT must have a minimum of ____ shareholders, with no more than ____% of the trust owned by _____ or fewer persons.
100 shareholders, 50% owned by five or fewer persons
What is an ownership characteristic of a REIT?
Limited liability
True or False: The initial offering of a REIT is exempt from the Securities Act of 1933.
False. Registration is required under the Act.
After the initial offering of a REIT, where will subsequent trading occur?
Either on an exchange or OTC
On what must 95% of a REIT’s gross income be derived?
Real estate-related activities, interest received on mortgages, or dividends and interest
95% of a REIT’s gross income may be based on various activities, and ____% must be solely from real estate.
75%
What investment benefit do REITs provide to investors?
Stable dividend payments
A REIT will not be taxed on its income if it distributes ____% of it to shareholders.
90%
Partnerships distribute ____% of income to owners, while REITs generally distribute ___% of income to shareholders.
100% income to owners, 95% shareholders
True or False: Generally, shareholders bear the burden of paying tax on income generated by a REIT.
True. Most REITs distribute a significant amount of their income to shareholders.
True or False: A REIT is considered an investment company.
False
A non dilutive offering of previously issued shares, often by officers or directors, is called a __________ offering.
Secondary offering
Define initial public offering (IPO).
A company’s first public offering of securities
What is the name of the offering of additional shares after a company has conducted its initial public offering (IPO)?
A follow-on offering or additional issuance
What is a combined offering?
One in which the proceeds will be split between the issuing company and selling shareholders
True or False: Registration provisions apply when securities are offered publicly.
True
True or False: Registration provisions apply when securities are offered through a private placement.
False. Private placements are exempt from registration.
What is one disadvantage to offering securities through a private placement?
The offering is limited to only certain types of investors.
True or False: Using a private placement to offer securities is a faster, less expensive method than a public offering.
True
What are the details related to the Section 4(6) exemption?
An exemption is provided if securities are sold to accredited investors and no more than $5 million of capital is sold.
An offering of shares with the proceeds being directed to the issuing corporation is called a ________ offering.
primary offering
True or False: A significant goal of the Securities Act of 1933 is to prevent fraud in the sale of new issues.
True
The SEC ____________ clause must be included in the prospectus for a new issue.
No Approval Clause
True or False: Rather than judging an investment’s merit, the SEC reviews completeness of registration documentation.
True
Complete the following statement: The SEC requires a securities offering to register unless it is _______.
exempt
List some items that are required to be included in an issuer’s registration statement.
Nature of its business, total capitalization (equity and debt), financial statements, biographies of officers/directors
What information is NOT included in an issuer’s registration statement?
Earnings projections, comparison of profitability to its competitors, or results of its due diligence meeting
Public offerings of securities require the delivery of a ___________.
prospectus
Before initiating quotes for a non-exchange stock, what is the member firm’s responsibility?
The quoting firm must collect and review certain information about the issuer (i.e. complete Form 211).
What exception allows a firm to quote a non-exchange stock without filing Form 211?
The piggyback exception.
The exception is based on the stock having been subject to regular and continuous quotes.
To qualify for the piggyback exception, a quote must have appeared on at least ____ of the last ____ days.
12 of the last 30 days
Before initiating quotes for a stock quoted in the Pink Sheets, with whom must Form 211 be filed?
FINRA
How many specific items about an issuer must a member firm collect and submit to FINRA prior to quoting the stock?
16 specific items
Before initiating quotes for a non-exchange security, a market maker must file __________.
Form 211
Form 211 must be filed at least ______ business days prior to initiating quotes for an OTCBB security.
3
Filing Form 211 is not required if stock has been the subject of regular and continuous quotes for the past ____ days.
30
As it applies to the piggyback exception, what does regular and continuous quoting imply?
A quote has appeared on at least 12 of the last 30 days with no more than four business days elapsing without a quote
True or False: Form 211 must be filed by firms that intend to make markets in Nasdaq securities.
False. Form 211 is required for firms that intend to initiate quotes for non-exchange securities.
Before initiating quotes for a non-exchange stock, where may required information be obtained about the issuer?
The issuer’s current prospectus or offering circular, or its current Form 10-K and all subsequent 10-Q and 8-K Forms
Related to the registration process, when does the cooling-off period begin?
Once the registration statement is filed with, and filing fee is paid to, the SEC
True or False: For a new issue, indications of interest are NOT shared with management.
False. Indications of interest are shared to assist in determining the offering price.
For a new issue, are indications of interest binding or non-binding?
non-binding
True or False: During the cooling-off period, sales may be effected and money may be accepted.
False
To blue sky an issue means to register the offering at the ______ level.
State
Regarding a new issue, when is the final due diligence meeting held?
Prior to the anticipated effective date
Who attends the final due diligence meeting held prior to the effective date?
The issuer, underwriter, and other interested parties