Business Law – Essay Example
REGISTRATION AND EXEMPTION FOR STOCK ISSUE IN KANSAS Provisions of Law regarding issue of stock registration and exemptions with Securities Exchange Commission.
REGISTRATION AND EXEMPTION FOR STOCK ISSUE IN KANSAS
Langley Brothers Ltd, an incorporated company has decided to sell common stock on par worth $ 1 million to the public. They will be issued at par and sold only in Kansas State. This paper will deal the questions whether it is necessary for the public offering to be registered with the Securities Exchange Commission. It will also examine the class of securities exempt from registration under the provisions of Securities Exchange Act 1934.
The Supreme Court settled the law regarding securities in the case of SEC v Howey (U. S. S. C. 1946). According to this judgment, there are four elements comprising of a security. A security exists whenever there is a common enterprise resulting in investment of some amount by members of public with an intention to earn profits from the managerial or entrepreneurial expertise of others. Hence the stock on offer by Langley Inc. falls under the category of security as per the provisions of the Securities Act 1933. Kansas State has made it easier for small companies to raise funds by a program called SCOR i.e. Small Company Offering Registration (Internet article, N D.). According to Rule 504 the stock offered should be up to $ 1 million and the SEC has to given notice of the offering. Thus, Langley Inc can get exemption from federal registration. Both Harry and Joseph are partly right and partly wrong. The fact that the stock is to be sold only in Kansas has a bearing on the issue.
"any security which is a part of an issue offered and sold only to persons resident within a single State or Territory, where the issuer of such security is a person resident and doing business within . . . such State or Territory”
Apart from exemption under Rue 504, there are many other exemptions available to companies. Apart from this there are many other exemptions available for transactions regarding securities under the Securities Act, 1933. They are numerated as below.
1. Reg. A, issue offered up to $ 5 million within twelve months, subject to conditions.
2. Rule 504a Offerings upto $ 5 million in twelve months by blank check companies.
3. Rule 505 Private non-investment offerings up to $ 5 million.
4. Private unsolicited and non-advertised investments unlimited amount.
5. S.4(6) Up to $ 1 millionmde only to accredited investors in 12 month period.
SEC v. Howey, (per Justice Murphy) p. 328, U. S. 294 viewed 10th September 2010
Raising Capital in Kansas (Internet article, N. D.), Kansas Office of the securities commissioner
Viewed 10th December 2010
S. 3 (a) 11 of the Securities Act, 1993, General rules and regulations provided under the securities act, 1993, viewed 10th September 2010