What are exempt securities and exempt transactions?

Certain types of securities and certain transactions are deemed by the SEC to be exempt from registration requirements.

Exempt Security – Common types of exempt securities are government securities, bank securities, high-quality debt instruments, non-profit securities, and insurance contracts. Most important for private, for-profit companies is the broad exemption under Section 4 of the 33 Act of transactions by an issuer not involving any public offering. This is known as a private offering. A private offering is generally for a lesser amount of money that is invested by a small number or closely-related investors.

Note: The exempt type of security never has to be registered, even if it is resold following the issuance.

Exempt Transaction – An exempt transaction is a transaction that does not warrant full-blown registration. Exempt transactions generally involve either a limited amount of capital or sophisticated or accredited investors.

Note: A security sold in an exempt transaction may have to be registered to avoid violating the 33 Act if resold within a short period of time.

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