The ’33 Act regulates sales of securities (Section 2(a)(1)). Generally, it is illegal to sell securities to public unless those securities are registered (Section 5) or there is an exemption from registration (3(a)(11); 3(b); or 4 are the statutory exemptions. Rules 504, 505, and 506 are safe harbors based upon these statutory exemptions).
The registration statement is the primary document that the entrepreneur must file with the SEC before undertaking a security offering. The registration statement provides extremely detailed information about the business and the intended equity offering. The SEC reviews this information and makes it available to the public. Potential investors considering investing in the venture will use this information to make an informed decision. The investor can feel confident in the veracity of the information.
There are several versions of the registration statement – the applicability of each depends upon the character and status of the business. The most common and well-recognized registration statement is the S-1, which applies to larger corporate entity forms that intend to offer securities to the public at large. The Form S-1 contains instructions and references to dozens, if not hundreds, of applicable regulations that provide detailed information that must be included in a registration statement. While the actual requirements for registration are sufficient to fill a textbook, we simply make reference to them in order to illustrate the extensive requirements associated with registering the sale of a covered security.
Navigating the registration process is unduly burdensome for many startups. As such, the startup will seek an exemption from the registration requirement. The exemption will generally relieve the registration requirements, but the entrepreneur must still make certain disclosures to perspective purchasers or purchasers of a security.