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Public Offerings

The Securities Act of 1933 (1933 Act) is essentially a "disclosure" statute, requiring that the issuer make full disclosure of all material facts relating to the offering. The SEC does not have authority to evaluate securities to decide whether they appear to be wise investments.

Federal security law requires that no security be offered or sold to the public unless it is registered with the SEC or unless the security or transaction is exempt from the registration requirement. Because of the time and expense that must be allocated to the registration process, securities lawyers carefully evaluate securities offerings to pigeon-hole them into an exemption if possible.

By its terms, the 1933 Act requires registration for any sale by any person of any security, unless it is specifically exempted from the registration process. The 1933 Act's exemptions are two-fold, comprised of exempt securities and exempt transactions.

Exempt securities include securities issued or guaranteed by the U.S. government or any state, or by any bank, savings and loan, or similar regulated financial institution. Securities arising out of a contract issued by an insurance company in connection with an employee bonus, pension, or profit-sharing plan are also exempt, as are securities issued in connection with a corporate recapitalization, so long as no commissions are paid in connection with the issue. Finally, securities that are part of an issue offered and sold only to residents of a single state by an issuer incorporated and doing business within that state are exempt because of the intrastate nature of the issue.

The most important transactional exemption exempts "transactions by any person other than an issuer, underwriter or dealer." This exempts most secondary trading in already outstanding securities from the registration requirement. Another important transactional exemption is the exemption of "transactions by an issuer not involving any public offering." Large amounts of securities can be sold pursuant to this exemption, often involving private placements of large blocks of securities with institutional investors such as insurance companies and pension funds. Additional transactional exemptions include intrastate offerings and offerings that are exempt from registration by virtue of Regulation D.

There are specific procedural requirements pertaining to the registration process and specifying the information that must be disclosed. Registration is accomplished by filing with the SEC a "registration statement" consisting of a prospectus, a copy of which must be provided to every purchaser of the securities, and additional information and exhibits that are filed with the SEC and available for public inspection. There are specific requirements concerning the contents of the prospectus and the additional information and exhibits that are filed with the SEC.

Pursuant to the SEC's integrated disclosure system, issuers who have filed reports with the SEC under the Securities Exchange Act of 1934 (1934 Act) for at least three years may supply information about themselves as part of a 1933 Act offering by including in their registration statements a copy of their latest annual report to shareholders. The rationale for this is that information concerning the issuer is already in the marketplace by virtue of earlier SEC filings, obviating the need for further disclosure. The administrative burdens on "small business issuers" (companies with annual revenues of less than $25 million) have been further reduced by streamlined registration and disclosure forms and requirements applicable thereto.

The SEC for many years took the position that 1933 Act registration statements should contain only descriptions of current or completed activities and historical financial data. In 1978, the SEC rethought its position, and encouraged issuers to include forward-looking projections with their registration statements. An issuer will not be held liable for failure to achieve these projections so long as the projections were made in good faith, had a reasonable basis and were accompanied by "meaningful cautionary statements."

Generally, no offers or sales of securities may be made prior to filing of the registration statement. Well-known seasoned issuers are exempt from the prohibition on offers prior to filing of the registration statement. Communications by issuers made more than 30 days before the filing of the registration statement are also permitted if the communications do not reference an offering that is or will be the subject of a registration statement.Offers, but not sales, may be made between the filing date and the date the registration statement becomes effective. A registration statement becomes effective twenty days after it is filed with the SEC, at which point the issuer is free to sell the registered securities to the public. However, the SEC has the power to delay or suspend the effectiveness of the registration statement if it appears that the registration statement is incomplete or inaccurate in any material respect. The SEC can also issue a stop order suspending the effectiveness of a registration statement, but has done so only in egregious situations. Rather than relying on these powers, the SEC in most cases employs a procedure whereby it reviews registration statements and provides the issuer with informal "letters in comment" or "deficiency letters" suggesting or insisting on changes, additions, or deletions.

Federal law provides for civil liability for fraudulent misstatements or omissions in any offer or sale of securities, whether or not registered under the 1933 Act. There is a specific provision addressing liability for fraudulent misstatements or omissions in registration statements.

In addition to the registration requirements under federal law, issuers are required to register in most states in which offers or sales are made. This registration is usually accomplished by filing a copy of the federal registration statement and offering materials with the state securities or commerce commissioner.

The Sarbanes-Oxley Act of 2002 requires that the chief executive officer or chief financial officer certify a company's quarterly or annual filings with the SEC. The Act also requires more rapid disclosure of material changes in a company's financial condition.

Checklist: Ongoing Disclosure Requirements If Your Company Goes Public

To read and print out a copy of the Checklist please link below.

Ongoing Disclosure Requirements If Your Company Goes Public

You can download a free copy of Adobe Acrobat Reader here.

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