Securities Act of 1933 refresh correct answers -regulates new issue market
-all securities must be registered for lawful sale unless the securities are exempt or the transaction is exempt
-must be submitted to the SEC, but doesn't mean the SEC approves - just reviews for disclosure
Subchapter ...
Series 79 Day 2 || A+ Verified Solutions.
Securities Act of 1933 refresh correct answers -regulates new issue market
-all securities must be registered for lawful sale unless the securities are exempt or the
transaction is exempt
-must be submitted to the SEC, but doesn't mean the SEC approves - just reviews for disclosure
Subchapter C Corporation correct answers -unlimited number of shareholders
-exchange listed, if public
-do not pass through taxes
-shareholders can be anyone
-capital gains taxed at favorable long term rate (if held for over 1 year)
Subchapter S Corporation correct answers -small
-100 maximum shareholders
-pass through gains and losses (investors pay)
-shareholders can be domestic individuals only
-capital gains taxed at favorable long term rate (if held for over 1 year)
A husband and wife, individually, are each shareholders of the same Subchapter S Corporation.
Do they count as one shareholder or two shareholders for purposes of the 100 shareholder limit?
correct answers one shareholder
Real Estate Investment Trusts (REITS) correct answers -pool of capital that invests in RE
-provides a liquid RE investment
-75% of gross income derived from RE
-75% of total assets invested in real estate
-90% of income must be distributed to investors
-taxes are passed through
-good investment for people looking for income (dividends)
Limited Partnerships correct answers -pass through
-general partner manages day to day operations
-limited partners are silent partners
Master Limited Partnerships (MLPs) correct answers -pass through
-limited partnership that can do a public offering
-ex. Blackstone, KKR, etc.
exempt entities correct answers -don't need to register
ex. U.S. Government & Government agencies or Municipalities
other exempt securities correct answers -short term corporate debt (commercial paper)
-securities issued by commercial banks
,Securities Act of 1933 Timeline correct answers 1. pre-registration period (no material
information release for 30 days prior to filing)
2. issuer files registration statement with the SEC
3. cooling-off period (20 days)
4. effective date - SEC "clears" the issue
5. post-effective date
pre-registration period correct answers -no sales
-no marketing
-no indications of interest
-no gun jumping
-primary document: S-1 prepared
cooling-off period correct answers -20 days
no sales
-marketing OK
-road shows OK
-indications of interest are OK
-FWPs OK
-primary document: red herring distributed
post-effective date correct answers -sales OK
-all purchasers must receive final prospectus
-quiet periods for research
-primary document: final prospectus
Form S-1 correct answers long form registration statement, generally used for an IPO
Form S-3 correct answers short form, generally used for a follow-on offering, can refer to
information in previous filings
Form S-4 correct answers an exchange offer, like a merger or debt refi
registration statement required info (issuer) correct answers -description of the issuer's business
-use of proceeds
-legal proceedings against issuer
-capitalization table (list of outstanding debt and equity) does NOT include commercial paper
registration statement required info (underwriter) correct answers -names of underwriters
-compensation being received (the gross spread, not individual components)
registration statement required info (insiders) correct answers -list of officers, directors, and
>10% shareholders
-addresses, salaries, and 5-year business history (officers and directors only)
registration statement required info (financials) correct answers -audited financial statements
, -past 2 years balance sheets
-past 3 years income statement and cash flows
requirement for re-filing financials correct answers WKSIs/Seasoned Issuers: become outdate at
more than 130 days old
All other issuers: become outdated at more than 135 days old
Liabilities for Misleading Information in a Registration Statement (Section 11) correct answers -
anyone involved in preparation of the filing is liable
-issuer
-directors and partners
-bankers
-lawyers
-accountants who consent to be named
-civil penalties: refund cost of their investment + reasonable interest
Burden of Proof correct answers -can avoid liability if there was something untruthful in the
registration
-withdraw from transaction and notify SEC ("noisy exist")
Due Diligence Defense correct answers can access/utilize this after a reasonable investigation,
meaning the person believed the information to be true
Who cannot use the due diligence defense? correct answers the issuer or an accountant who did
not consent to be named
In order for an underwriter to use the due diligence defense, what standard must be met? correct
answers the underwriter must satisfy the prudent man standard - "you know it when you see it"
An investment banking rep is doing due diligence on an IPO for a company located on the
Florida panhandle. The rep reads the following disclosure in the S-1:
"Our coastal location carries significant hurricane risk. We carry hurricane insurance that would
ensure that business operations are uninterrupted from a hurricane." correct answers Rep's best
course of action is to notify legal counsel that this is an unsuitable passage
compliance with blue sky laws correct answers -state security laws
-issuer , underwriters, and securities professionals (bankers) must be registered in any state
where securities are sold
prohibitions against gun-jumping correct answers gun jumping occurs if an issuer discusses a
deal after making the decision to go public but before filing a registration with the SEC
Which of the following is most likely a gun jumping violation? correct answers Two weeks prior
to filing a registration statement, the company releases results for the previous quarter.
(cannot release material information within 30 days of filing)
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