Exempt Transaction (Securities) - Explained
What is an Exempt Transaction?
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Table of ContentsWhat is an Exempt Transaction?What Qualifies as an Exempt Transaction?Types of Exempt TransactionsAcademic Research on Exempt Transactions
What is an Exempt Transaction?
An exempt transaction is a provision that states that certain securities transactions do not need to be registered once the number of securities in the transaction does not exceed the threshold. In the United States, exempt securities are securities that need not be registered or filed with the Securities and Exchange Commission (SEC) and other regulatory bodies.
Exempt securities have the backing of the government and the provision on non-registration is contained in the Securities Act of 1933, under Section 4. Exempt securities can be traded in an exempt transaction but there is a limit to the number of exempt securities that can be offered in an exempt transaction.
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What Qualifies as an Exempt Transaction?
Ordinarily, when securities are to be traded in the market, it is required that they are filed or registered with the SEC. This requires a lot of procedures and submission of paperwork. In the case of exempt securities, the need for registration or filing of securities with the SEC has been eliminated, exempt transactions are also the same. However, the provision for exempt transaction is only applicable for minor transactions and when new securities are not being issued. If the transaction is a major one, there is a need to register with the SEC and other regulatory bodies.
Types of Exempt Transactions
There are various types of exempt transactions and unique regulations for each type. Types of exempt transactions include;
- Reg D Offering: this is a form of exempt transaction in which securities are sold to accredited investors privately, the securities are not sold in a public offering. A bank, an insurance firm, small businesses or registered investment company qualify for this kind of purchase.
- Reg A Offerings: This type of exempt transaction allows a small business or company raise over $5 million through exempt transactions for a period of one year. This type of exempt transaction is limited to small businesses.
Intrastate offerings, Rule 147 offerings, and unsolicited orders are regarded as exempt offerings. For Reg D offerings, it is important to state that individuals with at least $1 million net worth can also purchase securities in this form of transaction. A charitable organization which is tax-exempt and an enterprise owned by accredited investors can also purchase these securities.
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