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Entrepreneurial Finance > Chapter 8 - Exam 2 > Flashcards

Chapter 8 - Exam 2 Flashcards

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1
Q

The securities Exchange act of 1934 provides for the regulation of securities exchanges and over-the-counter markets.

A

True

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2
Q

The Investment Company Act of 1940 defines investment companies and excludes them from using some of the registration exemptions originating in the 1933 Act.

A

True

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3
Q

The Investment Advisers Act of 1940 provides a definition of an investment company.

A

False

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4
Q

According to the Investment Advisers Act of 1940, a bank would not be classified as an “investment advisor”.

A

True

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5
Q

The Securities Act of 1933 is the main body of federal law governing the creation and sale of securities in the U.S.

A

True

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6
Q

The Securities Exchange Act was passed in 1933 and the Securities Act was passed in 1934.

A

False

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7
Q

Regulation of investment companies (including professional venture capital firms) is carried out under the Investment Company Act of 1940.

A

False

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8
Q

The trading of securities is regulated under the Securities and Exchange Act of 1954.

A

False

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9
Q

State laws designed to protect high net-worth investors from investing in fraudulent security offerings are known as blue-sky laws.

A

False

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10
Q

Offerings and sales of securities are regulated under the Securities Act of 1933 and state blue-sky laws.

A

True

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11
Q

Blue-sky laws are federal laws designed to protect individuals from investing in fraudulent security offerings.

A

False

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12
Q

The typical business organization for a venture in its rapid-growth stage is a partnership or LLC.

A

False

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13
Q

Investor liability in a limited liability company (LLC) is limited to the owners’ investments.

A

True

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14
Q

Investor liability in a proprietorship or corporation is unlimited

A

False

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15
Q

The life of a proprietorship is determined by the owner.

A

True

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16
Q

It is usually easier to transfer ownership in a proprietorship relative to a corporation.

A

False

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17
Q

The two basic types of exemptions from having to register securities with the SEC are security and transaction exemptions

A

True

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18
Q

The Securities Act of 1933 provides a very narrow definition as to what constitutes a security.

A

False

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19
Q

SEC Rule 147 provides guidance on the issuer’s diligent responsibilities in assuring that offerees are in-state and that securities don’t move across state lines.

A

True

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20
Q

A private placement, or transactions by an issuer not involving any public offering, is exempt from registering the security.

A

True

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21
Q

Accredited investors are specifically protected by the Securities Act of 1933 from investing in unregistered securities issues.

A

False

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22
Q

The typical business organization for a venture in its rapid-growth stage is a partnership or LLC.

A

False

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23
Q

In SEC v. Ralston Purina (1953), the U.S. Supreme Court took an important step toward defining a public offering for the purposes of Section 4(2) of the Securities Act of 1933.

A

False

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24
Q

SEC Regulation D requires the registration of securities with the SEC.

A

False

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25
Q

An early stage venture that is not an investment company and has written compensation agreements can structure compensation-related securities issues so they are exempt from SEC registration requirements.

A

True

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26
Q

SEC Regulation D took effect in 1932 and provides the basis for “safe harbor” as a private placement.

A

False

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27
Q

. Rule 504 under Regulation D has a $2 million financing limit (i.e., applies to sales of securities not exceeding $2 million).

A

False

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28
Q

A Rule 504 exemption under Regulation D has no limit in terms of the number and qualifications of investors.

A

True

29
Q

A Regulation D Rule 505 offering cannot exceed $5 million in a twelve-month period.

A

True

30
Q

A Regulation D Rule 505 offering is limited to 35 accredited investors.

A

False

31
Q

A Regulation D Rule 506 offering has no limit in terms of the dollar amount of the offering but is limited to 35 unaccredited investors.

A

True

32
Q

Regulation A, while technically considered an exemption from registration, is a public offering rather than a private placement.

A

True

33
Q

Regulation A allows for registration exemptions on private security offerings so long as all investors are considered to be financially sophisticated.

A

False

34
Q

Regulation A issuers are allowed to “test the waters” before preparing the offering circular (unlike almost all other security offerings).

A

True

35
Q

Regulation A offerings are allowed up $10 million and do not have limitations on the number or sophistication of offerees.

A

False

36
Q

The objective of the Jumpstart Our Business Startups Act of 2012 is to stimulate the initiation, growth, and development of small business companies.

A

True

37
Q

Title II of the JOBS Act of 2012 eliminates the general solicitation and advertising restriction for Regulation D 506 offerings.

A

True

38
Q

Which of the following is not true regarding the Securities Act of 1933?

a. it was passed in response to abuses thought to have contributed to the financial catastrophes of the Great Depression
b. it covers securities fraud
c. it requires securities to be registered formally with the federal government
d. it set of the nature and authority of the Securities and Exchange Commission
e. it focuses on those who provide investment advice

A

e.

39
Q

The U.S. federal law that impacts the creation and sales of securities is:

a. Securities Exchange Act of 1934
b. Securities Act of 1933
c. Investment Company Act of 1940
d. Investment Advisers Act of 1940

A

b.

40
Q

The efforts to regulate the trading of securities takes place under which of the following securities laws?

	a. Securities Act of 1933
	b. state “blue-sky” laws
	c. Securities and Exchange Act of 1934
	d. Investment Company Act of 1940
	e. Investment Advisers Act of 1940
A

c.

41
Q

Efforts to regulate the offerings and sales of securities take place under which of the following securities laws?

	a. Securities Act of 1933
	b. state “blue-sky” laws
	c. Securities and Exchange Act of 1934
	d. Investment Company Act of 1940
	e. Investment Advisers Act of 1940
	f. Both a and b
	g. Both a and c
A

f.

42
Q

In securities law, which of the following is (are) true?

a. ignorance is no defense
b. security regulators may alter your investment agreement to the benefit of the investors
c. Securities Act of 1933 gives the SEC broad civil procedures to use in enforcement
d. Securities Act of 1933 gives the SEC some criminal procedures to use in enforcement
e. a, b, and c above
f. a, b, c, and d above

A

f.

43
Q

Which of the following is not a security?

	a. treasury stock
	b. debenture
	c. put option
	d. real property
	e. call option
A

d.

44
Q

State securities regulations are referred to as:

a. Regulation A legislation
b. “stormy day” laws
c. “blue sky” laws
d. SEC oversight legislation

A

c.

45
Q

Which of the following is not true about registering securities with the SEC?

	a. it is a time consuming process
	b. it required the disclosure of accounting information
	c. it is usually done with the help of an investment bank
	d. it is an inexpensive process
	e. it provides information to prospective investors
A

d.

46
Q

All of the following do not create any securities registration responsibilities except?

	a. Treasury securities
	b. Municipal bonds
	c. securities issued by publicly held companies
	d. securities issued by banks
	e. securities issued by the government
A

c.

47
Q

Ventures that reach their survival stage of their life cycles and seek first-round financing are typically organized as:

	a. proprietorships or partnerships
	b. LLCs or corporations	
	c. corporations
	d. partnerships or LLCs
	e. proprietorships or corporations
A

b.

48
Q

Investor liability is “unlimited” under which of the following types of business organizational forms?

	a. proprietorship
	b. limited liability company (LLC)
	c. corporation
	d. S corporation
	e. S limited liability company (SLLC)
A

a.

49
Q

Which one of the following is not a requirement for registration of securities with the SEC?

	a. the name under which the issuer is doing business
	b. the name of the state where the issuer is organized
	c. the names of all products sold by the issuer
	d. the names and addresses of the directors
	e. the names of the underwriters
A

c.

50
Q

The returning of all funds to equity investors as a common “remedy” for a “fouled up” securities offering is called:

a. just action
b. fraud
c. second round financing
d. a rescission
e. mezzanine financing

A

d.

51
Q

“Security” exemptions from registration with the SEC include which of the following:

a. securities issued by banks and thrift institutions
b. government securities
c. intrastate offerings
d. securities issued by large, high quality corporations
e. a, b, and c above
f. a, b, c, and d above

A

e.

52
Q

The basic types of “transaction” exemptions for registration with the SEC are:

a. private placement exemption
b. “too big to fail” exemption
c. accredited investor exemption
d. intrastate offering exemption
e. a and c above
f. b and d above

A

e.

53
Q

In the Ninth Circuit Court of Appeals decision on SEC v. Murphy, all of the following were considerations in determining an offering to be a private placement except:

a. there must be an arm’s length relationship between the issuer of the security and the prospective purchaser
b. the number of offerees must be limited
c. the size and the manner of the offering must not indicate widespread solicitation
d. the offerees must be sophisticated
e. some relationship between the offerees and the issuer must be present

A

a.

54
Q

Which SEC Regulation took effect in 1982 and provides the basis for “safe harbor” as a private placement?

a. Regulation A
b. Regulation B
c. Regulation C
d. Regulation D
e. Regulation E

A

d.

55
Q

Unless your security is exempted, what Section of the Securities Act of 1933 requires you to file a registration statement with the SEC?

a. Section 1
b. Section 2
c. Section 3
d. Section 4
e. Section 5

A

e.

56
Q

Which one of the following is not an exemption method for making an offering exempt from SEC registration?

	a. 4(2) private offering
	b. accredited investor
	c. Regulation D	
	d. Regulation A
	e. Regulation Z
A

e.

57
Q

Exemptions for private placement offerings and sales of securities in the amount of $2 million are handled under which one of the follow rules under Regulation D?

a. Rule 501
b. Rule 502
c. Rule 503
d. Rule 504
e. Rule 505

A

e.

58
Q

Which one of the following SEC registration exemptions has a financing limit in a 12-month period and permits a maximum of 35 unaccredited investors?

a. Section 4(2)
b. Reg D: Rule 504
c. Reg D: Rule 505
d. Reg D: Rule 506
e. Regulation A

A

b.

59
Q

Rule 504 of Regulation D limits the total number of investors to:
a. 35
b. 100
c. 35 unaccredited investors and any number of accredited investors
d. there is no limit on the number of accredited or unaccredited
investors

A

d.

60
Q

Offerings exempted from registration under rule 505 of Regulation D may raise up to $5 million in a:

	a. 6-month period
	b. 9-month period
	c. 12-month period
	d. 18-month period
	e. 24-month period
A

c.

61
Q

Rule 506 of Regulation D is limited in terms of the number of unaccredited investors to:

	a. 20
	b. 25
	c. 30 d. 35
	e. 40
A

d.

62
Q

Which one of the following “rules” under Regulation D has a $5 million financing limit?

	a. Rule 504
	b. Rule 505
	c. Rule 506
	d. Rule 507
	e. Rule 508
A

b.

63
Q

While Section 4(2) does not limit the dollar amount of an offering, the interpretation of the law has stipulated that:
a. the investors must be sophisticated
b the number of investors must be limited to 35
c. the funds must be raised within a 12-month period

A

a.

64
Q

An offering that raises $2,500,000 over a 12-month period, involving 35 unaccredited investors and 5 accredited investors, might be exempt from registration under:

	a. Section 4(6)
	b. Regulation D: Rule 504
	c. Regulation D: Rule 505
	d. none of the above
A

c.

65
Q

Which one of the following is not a characteristic of Regulation A?

a. An offering is limited to $5 million
b. the number offerees or investors is limited to 35
c. the offering is a public offering
d. the securities issued can generally be freely resold

A

b.

66
Q

Of the following, which is not true about Regulation A?

	a. it is shorter and simpler than the full registration
b. it does not have limitations on the number or sophistication of offerees.
	c. it is a public offering rather than a private placement
	d. it can generally be freely sold
	e. it requires no offering statement be filed with the SEC
A

e.

67
Q

Which of the following exemptions involves a public, and not a private, offering?

	a. Section 4(2)
	b. Rule 501
	c. Rule 505
	d. Rule 506
	e. Regulation A
A

e.

68
Q

Under Regulation A, which one of the following is not true?

a. issuers are allowed to test the waters prior to preparing the offering circular
b. after filing a SEC statement, the issuer can communicate with perspective investors orally, in writing, by advertising in newspapers, radio, television, or via the mail to determine investor interest
c. issuers can take commitments or funds
d. there is a formal delay of 20 calendar days before sales are made
e. if the interest level is insufficient, the issuer can drop Regulation A filing

A

c.

69
Q

The JOBS Act of 2012 provides for which of the following:

a. establishes a new business classification called “Emerging Growth Company”
b. lifts restrictions on general solicitation and advertising for Reg D 506 accredited investor offerings
c. establishes a small offering registration exemption and calls for SEC rules relating to the sales of securities to an Internet :crowd” (security crowd funding)
d. a and b above
e. a, b, and c

A

e.

Entrepreneurial Finance (5 decks)

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