3.4 Securities Act Registration

• Library: Corporations and Partnerships in Virginia (Virginia CLE) (2016 Ed.)

3.4 SECURITIES ACT REGISTRATION

3.401 In General. When an issuer elects to sell securities to the public and no exemption applies, registration under the Securities Act is required. Section 5, which is the heart of the Securities Act, provides that unless a registration statement is in effect, it is unlawful to use the mails or other means of interstate commerce to sell a security by prospectus or to transmit the security. ¹⁷⁰ Furthermore, it is unlawful to (i) transmit a prospectus that does not meet the requirements of section 10 of the Securities Act; (ii) transmit the security, unless accompanied or preceded by a prospectus; or (iii) offer a security, unless a registration statement has been filed. ¹⁷¹ The registration process is time consuming, costly, and difficult. It requires careful attention to detail, development of facts, skill in drafting, and familiarity with the Securities Act and with the SEC rules, releases, forms, and practice.

The SEC has adopted an integrated disclosure system. ¹⁷² The securities registration forms coordinate the type and amount of disclosure required pursuant to the Securities Act with the type and amount of information on file with the SEC pursuant to the reporting requirements of the Exchange Act. ¹⁷³ Regulation S-K ¹⁷⁴ is the major repository for the uniform disclosure requirements for documents to be filed with the SEC.

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3.402 Forms. The SEC has adopted a number of forms to be used to register securities for sales. Forms S-1 and S-3 provide the basic framework for the registration of securities under the Securities Act. The same information is required to be a part of the registration statement; the only difference is whether the information must be delivered to investors or whether it can be incorporated by reference from documents on file with the SEC pursuant to the Exchange Act's reporting requirements. The remaining forms are for use by issuers in certain specialized transactions and are consistent with the requirements of Forms S-1 and S-3.

1.	Form S-1 is the basic form. It requires complete disclosure to be set forth in the prospectus and permits limited incorporation by reference. This form is to be used by issuers who have been subject to the Exchange Act reporting requirements for less than three years and by any issuer for whom no other form is available. 175
2.	Form S-3 requires the least amount of disclosure to be presented in a prospectus delivered to investors and allows the maximum use of incorporation by reference to documents on file with the SEC. Form S-3 may be used in certain specified transactions by issuers who have been subject to the Exchange Act reporting requirements for at least one year. 176
3.	Form S-4 may be used for securities issued in certain mergers, consolidations, and exchange offers. 177
4.	Form S-8 may be used by a company to register securities offered to employees under certain employee benefit plans. The company's securities must already be registered under the Exchange Act. 178
5.	Form S-11 is to be used by real estate corporations, partnerships, and investment trusts. 179

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There also are several other forms for special situations, but they are less commonly used.

3.403 Preparation of a Registration Statement. Each registration statement consists of two parts. Part I is the prospectus, which must be written in plain English using short sentences and the active voice and no legal jargon or highly technical business terms. ¹⁸⁰ Part II contains supplemental information not required to be included in the prospectus but that is nevertheless filed with the SEC. Before registering, the issuer should carefully examine Regulation C ¹⁸¹ and Regulation S-K ¹⁸² including, where appropriate, the Industry Guides. ¹⁸³ According to the SEC, the issuer should first determine which registration form is proper. In completing the form, the disclosure requirements of Regulation S-K and the appropriate registration form will control unless the rules of Regulation C specifically provide other-wise. ¹⁸⁴ In any event, the issuer must include, where required, the information specified in the Industry Guides.

A. General Requirements. Each registration statement is covered by a facing page as described in the appropriate form. According to Rule 473, ¹⁸⁵ the facing page of the initial filing should contain a delaying amendment to prevent the registration statement from becoming effective at the statutory time, which is the 20th day after filing. ¹⁸⁶ If this amendment is omitted, the SEC may enter a stop order as its means of delaying the effective date of the registration. Almost always, the delay is necessary, and it is preferable to use the delaying amendment rather than having the SEC issue a stop order.

B. Form Serves as Guide. Registration forms are not merely to be filled in; rather, the information required is to be presented in narrative form. The preparation of a prospectus involves the accomplishment of competing objectives. The prospectus must provide to prospective investors full and fair disclosure concerning the issuer and the security being offered, with

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the disclosure made in a nontechnical and readable manner. As such, the prospectus must "warn" the investor of the risks involved. At the same time, the prospectus is also a "selling" document, intended to attract potential investors.

C. Obtaining Necessary Information. The greatest challenge and the most difficult job for counsel is marshaling the facts needed for the registration statement. Often, it is helpful to examine recent prospectuses of similar companies. These may provide insight into various problems of the industry and may suggest the types of disclosures currently required by the staff of the Division of Corporation Finance. Questionnaires sent to officers, directors, and 10-percent shareholders of the issuer will often be used to obtain information needed in the registration statement. In addition to obtaining information concerning the relationships of these people with the issuer, the questionnaire gathers information pertaining to significant transactions with the issuer during the preceding three years.

In the course of marshaling the facts, corporate records and contracts must be reviewed. For a first-time offering, considerable work in "corporate clean-up" may be required through amending the articles of incorporation and consolidating affiliated corporations. In addition to information required by the appropriate form and Regulation S-K, the prospectus must contain all other material information about the issuer, its business, and the securities being offered. Any other information necessary to keep the statements from being misleading must also be set out.

The issuer's independent certified public accountant plays a major part in the preparation of a registration statement. The accountant must be intimately familiar with the requirements applicable to the form and content of the financial statements required to be filed as part of a registration statement (Item 310 of Regulation S-X ¹⁸⁷ for other issuers). While Item 310 of Regulation S-X primarily concerns the accountant, the attorney preparing a registration statement should be generally familiar with the requirements. In addition, each registration form sets forth certain guides that must be met in the preparation of financial statements.

D. SEC Staff Review. After a registration statement is filed, the SEC staff will determine whether to conduct a full review, a limited review, or no review of the registration statement. ¹⁸⁸ The time required for the staff's

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review of the registration statement will depend upon a number of factors. These include (i) whether the registrant is a first-time registrant; (ii) the backlog of registration statements already in the assistant director office to which the new registration is assigned; (iii) the nature of the review to be accorded the registration; (iv) the complexity of the registrant's business or financial statements; and (v) the care with which the registration statement was prepared. The first-time registrant should expect that it will take at least a month...