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  3. Securities Registration Exemption – Section 3b

Securities Registration Exemption – Section 3b

What is a Section 3(b) Registration Exemption?

•    Section 3(b)(1) Exemption – Section 3(b)(1) of the ’33 Act is an exemption from registration of securities. It gives the SEC authority to define the types of exempt transactions where the value of securities issued does not exceed $5 million (“small issues” exemption).

⁃    Note: This statutory authority is the basis for an exemption under Rule 504 of Regulation D (discussed below).

•    Section 3(b)(2) Exemption – Section 3(b)(2) allows the SEC to define a new “small issuance” class with a limit on the amount of funds raised of $50 million. These are unrestricted securities, which can be traded freely.

⁃    Note: This statutory authority is the basis for an exemption under Regulation A+ (discussed below).

•    Discussion: Why do you think the securities laws allow an exemption from registration of securities sold strictly to residents of the state in which the issuer primarily does business? Why do you think the law exempted the security, rather than the transaction? Do the benefits of an intrastate offering make it compelling for issuers despite the geographical limitations?

•    Practice Question: ABC Corp decides to sell shares to instate investors to raise $2.5 million in operating capital. ABC works diligently to make certain to offer the securities to only instate residents. What are the benefits of an intrastate offering? What is the risk to ABC Corp of purchasers immediately reselling the issued securities? This is ABC Corp’s third issuance of securities pursuant to an exemption? What information do you need to know to determine if the current issuance will cause a problem for ABC Corp?

 

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