Are Bonds Registered With The SEC?

Corporate bonds are securities that must be registered with the Securities and Exchange Commission (SEC) if they are offered publicly. The SEC’s EDGAR system can be used to check the registration of these securities. Anyone attempting to sell non-registered bonds should be avoided.

Who needs to register with the Securities and Exchange Commission?

A number of asset managers have discovered that they must register with the Securities and Exchange Commission (SEC) as a result of the US Dodd-Frank Act, which was signed into law in July 2010. However, many are excluded from full registration. In June 2011, the Securities and Exchange Commission (SEC) finalized the requirements and exemptions from full registration as an investment adviser. The SEC does not require foreign private advisers to register or file information. Private Fund Advisers, as well as those managing purely venture capital funds, may be excluded from registering with the SEC under the exempt reporting adviser exemption.

Exempt reporting advisers are subject to SEC examination and must prepare and file certain parts of Form ADV Part 1A. Kroll can help exempt reporting advisers prepare and file Form ADV, as well as determine whether your company qualifies for an exemption, as detailed below:

Firms with more than $25 million in assets under management and at least one managed account must register with the Securities and Exchange Commission (SEC) or the state(s) in which they are located and/or doing business.

A registration exemption may be available for firms that handle up to $150 million in private funds or just venture capital funds.

Firms with less than $25 million in assets under management should check their local state laws to see if they need to register.

Our worldwide compliance team is also well-versed in regulatory frameworks from many jurisdictions, including the SEC, FCA, and SFC. We’ve assisted businesses in establishing and maintaining regulatory-compliant compliance infrastructure, policies, and procedures. We also provide continuous compliance assistance and advice services, such as SEC mock examinations, on-site SEC examination support, annual self-assessments, regulatory filings/reporting, and regulatory change notifications, once firms are SEC registered.

Is it necessary to register municipal bonds?

Bonds issued by a municipality for a new project are known as fresh issues. The secondary market is where you can purchase bonds that have already been issued by other investors or sell bonds that have not yet matured. Bond funds are investments in a bond-owning mutual fund. Because you own the fund, you have a stake in the bonds.

You’ll purchase and sell through a broker in all of these circumstances, just like you would with stocks. It’s critical to comprehend the costs you’ll pay, as well as the bond’s possible “markup” (a sale price above face value).

The Municipal Securities Rulemaking Board (MSRB), which regulates the muni bond market, requires brokers that purchase and sell municipal bonds to register with the MSRB. They must provide specific pricing information so that you, the investor, are aware of what you’re spending.

What types of securities offerings do not require SEC registration?

What types of securities offerings do not require SEC registration? Rule 144A exempts the selling of restricted securities to Qualified Institutional Buyers (QIBs), which includes the majority of debt offers and a considerable share of convertible offerings in the United States.

Who is not required to register with the SEC?

Certain securities offerings that are not required to be registered may only be sold to or acquired by those who are 18 years old or older “accredited investors,” he says. An is a “Accredited Investor” is defined as:

a bank, a savings and loan association, an insurance company, a registered investment company, a business development company, or a small or rural business investment firm
a broker-dealer registered with the Securities and Exchange Commission (SEC), an investment adviser registered with the SEC or a state, or an exempt reporting adviser
a plan formed and maintained for the benefit of employees by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions, if the plan’s total assets exceed $5 million.
an employee benefit plan (within the definition of the Employee Retirement Income Security Act) if the investment choices are made by a bank, insurance firm, or registered investment adviser, or if the plan’s total assets exceed $5 million.
a nonprofit organization, corporation, limited liability company, or partnership with assets over $5 million that is tax exempt.
a director, executive officer, or general partner of the company selling the securities, or any director, executive officer, or general partner of that company’s general partner
an individual with a net worth of at least $1 million, excluding the value of his or her primary property, or a joint net worth with a spouse or spousal equivalent of at least $1 million.
an individual who earned more than $200,000 in each of the two most recent calendar years, or $300,000 in combined income with a spouse or spousal equivalent in those years, and has a reasonable likelihood of earning the same amount in the current year
a trust with assets exceeding $5 million that was not formed solely to purchase the securities offered, and whose purchases are directed by a person who meets the legal standard of having sufficient knowledge and experience in financial and business matters to evaluate the merits and risks of the potential investment
an entity that is not otherwise accredited yet owns investments worth more than $5 million.
a person who holds a valid general securities representative (Series 7) license, an investment adviser representative license (Series 65), or a private securities offerings representative license (Series 66). (Series 82)
a skilled employee of the issuer of securities, as defined in Rule 3c-5(a)(4) of the Investment Company Act, if the issuer is a 3(c)(1) or 3(c)(7) private fund or
If a family office has assets under management in excess of $5 million and its prospective investments are directed by a person with sufficient knowledge and experience in financial and business matters, the family office and its family clients are capable of evaluating the merits and risks of the prospective investment.

Do all investing firms have to register with the Securities and Exchange Commission (SEC)?

Investment companies and investment advisers are regulated by the Securities and Exchange Commission (“SEC” or “Commission”). This Package has been created by the SEC’s Division of Investment Management as a broad guide to the major federal securities laws and regulations that govern investment companies.

The Investment Company Act of 1940 (the Act) is the principal statute that controls investment businesses “Act on Investment Companies”). Under the Investment Firm Act, the SEC has implemented a number of regulations that further regulate investment company operations. Title 17 of the Code of Federal Regulations (CFR) contains these rules “Part 270 of the Code of Federal Regulations (“CFR”).

Under the Investment Advisors Act of 1940 (the Act), persons who manage the portfolios of registered investment companies must register with the Commission as investment advisers “Act on Advisers”). See the General Information on Investment Advisers Regulation page for further information. Registered investment advisers are governed by the Advisers Act and the Commission’s Investment Advisers Act regulations. Part 275 of the 17 CFR contains the regulations.

Other federal securities laws, such as the Securities Act of 1933 (the “Securities Act”), apply to investment corporations “The Securities Act of 1933 (“Securities Act”) and the Securities Exchange Act of 1934 (“Securities Exchange Act of 1934” Under these rules, the SEC has also implemented a number of general regulations that apply to investment companies.

The Investment Company Act, as well as other federal securities laws, are changed on a regular basis. SEC proposed regulations, as well as recently changed or adopted regulations, can be found in the Commission’s press releases.

Is it necessary to register securities?

Every offer and sale of securities, even if to a single individual, must be registered with the SEC or performed under an exemption from registration under federal securities laws.

Are municipal bonds free from taxes?

Municipal bonds (sometimes referred to as “munis”) are fixed-income investments that offer better after-tax returns than comparable taxable corporate or government issues. Interest paid on municipal bonds is generally excluded from federal taxes and, in some cases, state and local taxes as well.

When must a business register with the Securities and Exchange Commission (SEC)?

Your company’s securities offering may be eligible for one of several exemptions from the Securities Act’s registration requirements. The most popular ones are explained here. However, keep in mind that all securities transactions, including exempt transactions, are subject to the federal securities laws’ antifraud provisions. This implies that if you or others acting on your behalf make false or misleading statements about your company, the securities offered, or the offering, you and your company will be held liable. You and your company are jointly and severally liable for any such representations, whether made by your company or on its behalf, and whether made orally or in writing.

The federal securities laws are enforced by the government through criminal, civil, and administrative processes. Certain securities laws also allow private parties to file lawsuits. Purchasers may also be entitled to return their stocks and receive a refund of their purchase price if all conditions of the exemptions are not met.

Furthermore, even if an offering is excluded from the federal securities laws, it may still be subject to state-level notice and registration requirements. Before proceeding with your company’s offering, make sure to verify with the proper state securities regulators. See “Do state law requirements apply in addition to federal obligations?” for more information on these requirements. The North American Securities Administrators Association’s website has contact information for state securities regulators.

Non-public offering (private placement) exemption

“Transactions by an issuer not including any public offering,” according to Section 4(a)(2) of the Securities Act, are exempt from registration. The purchasers of the securities must meet the following requirements to qualify for this exemption, which is also known as the “private placement” exemption:

either possess the financial and business knowledge and experience to qualify as “sophisticated investors” (able to assess the investment’s risks and benefits), or be willing to face the investment’s economic risk;
have access to information that would typically be found in a prospectus for a registered securities offering; and

In general, general solicitation of investors and public promotion of the offering are incompatible with the non-public offering exemption.

The non-public offering exemption’s specific limits are not determined by rule. It becomes increasingly difficult to demonstrate that the offering qualifies for this exemption as the number of purchasers grows and their relationship with the company and its management gets more distant. If even one person who does not meet the required requirements receives securities from your company, the entire offering may be in violation of the Securities Act.

Rule 506(b) establishes objective standards that your organization can use to comply with the Section 4(a)(2) non-public offering exemption requirements. Regulation D, which is discussed in greater detail below, includes Rule 506(b).

Regulation D — Rules 504, 505 and 506

Rules 504, 505, and 506 of Regulation D establish exemptions from Securities Act registration. The requirement to file a notice on Form D with the SEC is the only filing requirement under any of these exclusions. The notification must be filed within 15 days of the offering’s first sale of securities. In many states, a Regulation D offering must also include the submission of a Form D notice. The primary aim of the Form D filing is to inform federal (and state) authorities of the amount and nature of the offering made under Regulation D.

Some Regulation D standards require specific disclosures to be provided to investors, while others do not. Even if your organization does not sell securities in a way that is subject to special disclosure rules, you should ensure that investors have access to appropriate information. The antifraud provisions of the securities laws apply to all securities sales. This means you should think about whether investors had access to the appropriate information, and any information you give them must be devoid of inaccurate or misleading statements. Similarly, information should not be omitted if the information presented to investors is inaccurate or misleading as a result of the omission.

Criminals and other “bad actors” are not permitted to participate in Rule 505 and 506 offerings. If an issuer wants to use one of these provisions, it must first assess if the issuer or any of its covered people has experienced a disqualifying occurrence. For Rules 505 and 506, the list of protected persons and disqualifying events is different. Issuers who depend on Rule 505 must follow the disqualification rules of Regulation A’s Rule 262. Rule 506 contains the appropriate disqualification provisions for issuers that depend on it (d). Even if an issuer is disqualified under these criteria, it may still be eligible for a waiver of disqualification. The waiver method is described in “Process for Requesting Waivers of ‘Bad Actor’ Disqualification Under Rule 262 of Regulation A and Rules 505 and 506 of Regulation D.” Each of the Regulation D exemptions is discussed separately below.

Rule No. 504. Rule 504, also known as the “seed capital” exemption, allows for the offer and sale of up to $1,000,000 in securities in a 12-month period with no restrictions. If your company isn’t a blank check company and isn’t required to report under the Exchange Act, you can exploit this exemption. In general, you can’t advertise the securities by broad solicitation or advertising, and buyers usually get “restricted securities.” Purchasers of restricted securities may not sell them unless they register with the Securities and Exchange Commission (SEC) or qualify for another exemption, which is discussed further below under the section “Resales of restricted securities.” Investors should be aware that they may not be able to sell non-reporting company stocks for at least a year without the issuer filing the transaction with the Securities and Exchange Commission.

Under one of the following scenarios, your company may use the Rule 504 exemption for a public offering of its securities with general solicitation and advertising, and investors will receive non-restricted stocks:

It sells in accordance with a state law requiring the public filing and delivery of a substantive disclosure document to investors; or it sells in accordance with a state law requiring the public filing and delivery of a substantive disclosure document to investors.
It sells in a state that requires registration and disclosure document delivery as well as in a state that does not, as long as your company provides all purchasers with the disclosure documents required by the state in which it registered; or it sells in a state that does not require registration or disclosure document delivery.
It sells solely under state law exemptions that allow general solicitation and advertising as long as sales are made only to “accredited investors” (we define “accredited investor” in more detail below in relation to our description of Rule 506 offerings).

505th Rule For offers and sales of securities aggregating up to $5 million in any 12-month period, Rule 505 grants an exemption. Your corporation can sell to an infinite number of “accredited investors” and up to 35 non-accredited investors under this exception. Purchasers must buy for the sole purpose of investing in the securities, not to resell them. The issued securities are “restricted securities,” which means that they cannot be resold without registration or a relevant exemption, as stated in the section below under “Resales of restricted securities.” Investors should be warned that if your company is not an SEC reporting company, they may not be allowed to sell securities for at least a year without the company registering the transaction with the SEC. To sell the securities, your company may not employ general solicitation or advertising.

If any of your purchasers are not accredited investors, you must provide them with disclosure documents that generally contain the same information as that contained in a registration statement for a registered offering, according to Rule 505. Financial statement requirements also apply to Rule 505 offers involving non-accredited investors. Financial statements, for example, must be audited by a qualified public accountant if they are required. You must also be ready to address queries from non-accredited investors who are interested in purchasing your property.

You have complete discretion over what information you provide authorized investors, as long as it does not violate the federal securities laws’ antifraud provisions. If your company makes information available to authorized investors, it must also make it available to non-accredited investors.

Rule No. 506. Rule 506 specifies two methods for executing a securities offering that is not required to be registered: Rule 506(b) and Rule 506(c) (c). Rule 506(b) has been in place for a long time. In 2013, Rule 506(c) was added to implement a JOBS Act statutory mandate.

506th Rule (b). As previously stated, Rule 506(b) is a “safe harbor” for the non-public offering exemption in Section 4(a)(2) of the Securities Act, which means it establishes that your transaction comes inside the Section 4(a)(2) exemption if particular requirements are met. The amount of money your firm can raise or the number of qualified investors to whom it can sell securities are not limited by Rule 506, but in order to qualify for the safe harbor, your organization must:

not sell securities to more than 35 non-accredited investors (unlike Rule 505, all non-accredited investors, whether alone or with a purchaser representative, must meet the legal standard of having sufficient knowledge and experience in financial and business matters to be capable of evaluating the merits and risks of the prospective investment); not sell securities to more than 35 non-accredited investors (unlike Rule 505, all non-accredited investors must meet the legal standard of having sufficient knowledge and experience in financial and business matters to be capable
provide non-accredited investors with specified disclosure documents that generally contain the same information as registered offerings (the company is not required to provide specified disclosure documents to accredited investors, but if it does, it must also make this information available to non-accredited investors);
be available to answer inquiries from non-accredited investors who are interested in purchasing; and

506th Rule (c). The SEC created Rule 506(c) to implement Section 201(a) of the JOBS Act, which removes the ban on employing general solicitation under Rule 506 if all purchasers of the securities are accredited investors and the issuer takes reasonable steps to verify that they are accredited investors.

Issuers may use broad solicitation to offer securities under Rule 506(c), provided that:

the issuer takes reasonable steps to confirm that their investors are accredited, and
a bank, an insurance firm, a registered investment firm, a business development firm, or a small business investment firm;
an employee benefit plan (within the meaning of the Employee Retirement Income Security Act) if the investment choices are made by a bank, insurance firm, or registered investment adviser, or if the plan’s total assets exceed $5 million;
a nonprofit organization, company, or partnership that is tax exempt and has assets in excess of $5 million;
a company’s director, executive officer, or general partner selling securities;
a person with a net worth of $1 million or more, excluding the value of his or her primary residence;
an individual who earned more than $200,000 in each of the two most recent calendar years, or $300,000 in joint income with a spouse in those years, and has a realistic expectation of earning the same amount in the current year; or
a trust with at least $5 million in assets that was not formed solely to buy the securities being offered, and whose purchases are directed by someone who meets the legal standard of having sufficient knowledge and experience in financial and business matters to evaluate the merits and risks of the potential investment.

Buyers are given “In a Rule 506 offering, “restricted securities” are used. As a result, following the offering, they will not be able to freely trade the securities, as stated below under the heading “Restricted securities resale.”

Private offers that are exempt under Rule 506 are protected by Section 18 of the Securities Act, which grants a federal preemption or exemption from state registration and review. However, states retain the right to investigate and prosecute fraud, as well as impose state notice filing requirements and collect state fees.

Regulation A

Regulation A is a 12-month exemption for public offerings that do not exceed $5 million. If you use this exemption, you must file a Form 1-A offering statement with the SEC, which includes a notification, an offering circular, and documents. This offering statement will be reviewed by the SEC staff.

Regulation A disqualifies felons and other “bad actors.” If an issuer wishes to rely on Regulation A, it must first assess whether it or any of its covered people has experienced a disqualifying occurrence. Rule 262 of Regulation A contains a list of covered persons and disqualifying occurrences. Even if an issuer is disqualified under these criteria, it may still be eligible for a waiver of disqualification. The waiver method is described in “Process for Requesting Waivers of ‘Bad Actor’ Disqualification Under Rule 262 of Regulation A and Rules 505 and 506 of Regulation D.”

Regulation A offerings are similar to registered offerings in many ways. Purchasers, for example, must be given an offering circular, which is akin to a prospectus. The securities can be sold openly, using general solicitation and advertising, just like in registered offerings, and purchasers do not obtain “restricted securities,” as stated below under the item “Resales of restricted securities.” The following are the main distinctions between Regulation A and registered public offerings:

A Regulation A offering’s financial statements are simpler and do not require auditing unless audited financial statements are already available;
Unless the firm satisfies the requirements that trigger Exchange Act registration, Regulation A issuers are exempt from both Exchange Act reporting obligations and Sarbanes-Oxley Act obligations that apply exclusively to SEC reporting corporations after the offering.
Companies can prepare the Regulation in one of three versions. One of the documents in the offering circular is a condensed question-and-answer document; and
Before going through the process of filing with the SEC, companies can “test the waters” to see if there is demand in their securities.

Regulation A is not available to SEC reporting entities. Except for development stage firms without a specific business (for example, “blank check companies”) and investment companies registered or required to be established under the Investment Company Act of 1940, all other types of companies may employ Regulation A. In most situations, shareholders can resell up to $1.5 million of securities using Regulation A.

Before filing an offering statement with the SEC, corporations can “test the waters” by publishing or delivering a written document to prospective purchasers or making scripted radio or television broadcasts to see if there is interest in their planned securities offering. This allows corporations to test whether there is sufficient market demand in their securities before incurring the entire range of legal, accounting, and other expenditures associated with filing an offering statement with the Securities and Exchange Commission. Companies cannot solicit or accept money for securities offered under Regulation A until the SEC staff has finished reviewing the filed offering statement and the company has delivered offering materials to investors.

Accredited investor exemption—Section 4(a)(5)

When the total offering price is less than $5 million, Section 4(a)(5) of the Securities Act exempts offers and sales of securities to accredited investors from registration.

The above-mentioned definition of accredited investor is the same as that used in Regulation D. This exemption, like the ones in Rules 505 and 506, does not allow any type of broad solicitation or advertisement. Although there are no document delivery requirements, all transactions are subject to the securities laws’ antifraud provisions.

Intrastate offering exemption

The “intrastate offering exemption” is found in Section 3(a)(11) of the Securities Act. This exemption makes it easier to fund local business activities. Your organization must meet the following requirements to be eligible for the intrastate offering exemption:

The quantity of the offering or the number of purchasers are not limited by the intrastate offering exemption. Each offeree and purchaser’s residence must be determined by your firm. The exemption may be withdrawn if any of the securities are offered or sold to even one out-of-state individual. The corporation could be in violation of the Securities Act if the exemption is not granted.

If a purchaser resells any of the securities to a person who lives outside the state within a short period of time after the company’s offering is completed (the usual test is nine months), the entire transaction, including the original sales made within the required state, could be considered a violation of the Securities Act.

Unless you know the persons to whom the securities are offered and the actual purchasers, and the transaction is directly discussed with them, your organization may have trouble relying on the intrastate exemption. If some of your company’s assets are located outside of the state, or if a significant portion of your company’s revenue is generated outside of the state where you want to sell your securities, you may have trouble qualifying for the exemption.

To guarantee that you meet the standards for the intrastate offering exemption, follow Provision 147, a “safe harbor” rule. However, transactions that do not meet all of Rule 147’s conditions may still be eligible for the exception.

Coordinated limited offering exemption under California law — Rule 1001

For offers and sells of securities in quantities up to $5 million that meet the provisions of Section 25102(n) of the California Corporations Code, SEC Rule 1001 provides an exemption from the Securities Act’s registration requirements. This California statute exempts offerings made by California corporations to “qualified purchasers” who have characteristics that are similar to, but not identical to, accredited investors. Before sales, California law allows for limited broad solicitation. Securities issued under this exemption are “restricted securities,” which can only be resold through registration or an eligible exemption from SEC registration, as discussed below under “Resales of restricted securities.”

Exemption for sales of securities through employee benefit plans — Rule 701

Certain sales of securities made to reward workers are excluded under SEC Rule 701. This exemption is only available to corporations that are not required to disclose under the Exchange Act. This exemption allows you to sell at least $1,000,000 in securities, regardless of the size of your company. If you meet certain calculations depending on your company’s assets or the quantity of existing securities, you can sell even more. You must offer notice to your employees if you sell more than $5 million in securities in a 12-month period. This disclosure must include specific financial and other facts. Employees obtain “restricted securities” in these transactions, which they are unable to freely offer or sell to the general public unless the securities are registered or the holders qualify for an exemption.

Resales of restricted securities

“Restricted securities” are previously issued securities held by security holders that are not freely transferable due to the issuer’s private sale transaction with the security holders. Security holders can only resell their stocks into the market after such a private transaction “A legitimate exemption from the Securities Act’s registration requirements for resale, such as Rule 144 under the Securities Act, or a valid registration statement under the Securities Act.

If holders of restricted securities want to resell using an effective registration statement, the issuing corporation can supply one by following the steps outlined above for registering a public offering of securities.

A holder of restricted securities can also resell them utilizing an exception. For example, Stocks Act Rule 144 allows the resale of restricted securities if certain requirements are met, such as holding the securities for six months or one year, depending on whether the issuer has been making reports under the Exchange Act. Depending on whether the security holder is an affiliate, Rule 144 may restrict the number of securities that can be sold at one time and the manner in which they can be sold. A corporation’s affiliate is a person who controls, is controlled by, or is under common control with the company, either directly or indirectly through one or more intermediaries.