Georgia Bar Journal
GSB Vol. 14, NO. 6, Pg. 18.
The Georgia Uniform Securities Act of 2008: An Analysis of Significant Changes to Georgia's Blue Sky Law
GSB JournalVol. 14, NO. 6April 2009The Georgia Uniform Securities Act of 2008: An Analysis of Significant Changes to Georgia's Blue Sky Lawby Keshawn Harry and Robert D. TerryDuring the 2007-08 legislative session, the Georgia General Assembly repealed the Georgia Securities Act of 1973 and passed the Georgia Uniform Securities Act of 2008 (the Georgia Uniform Securities Act).(fn1) Gov. Sonny Perdue signed the Georgia Uniform Securities Act on May 12, 2008.(fn2) With the enactment of this legislation, Georgia became the 15th state to adopt a securities regulation regime based on the model act that the National Conference of Commissioners on Uniform State Laws promulgated in 2002 as the Uniform Securities Act of 2002.(fn3)
The Georgia Uniform Securities Act, which becomes effective on July 1, 2009, marks a significant effort by Georgia lawmakers to modernize securities regulation in Georgia. As commentators have noted, non-uniform securities laws are often impracticable both for the regulated entities and the regulators who work in modern, globalized securities markets.(fn4) State uniformity reduces the burdens of complying with two separate regulatory regimes at the federal and the state level while increasing the ability of those regimes to integrate and enforce cohesive laws. Prior to Congress's enactment of the National Securities Markets Improvement Act of 1996,(fn5) the dual regulatory system led, in some instances, to perceived redundancies.(fn6) The National Securities Markets Improvement Act addressed this problem by exempting offerings of federal covered securities from state regulation, restricting states' abilities to impose different recordkeeping obligations and clearly bifurcating investment adviser regulation.(fn7) Paradoxically, this resolution had a uniform effect on state securities law-namely, preemption-while leaving the states on their own to handle the requisite amendments to their securities acts in an often non-uniform manner.(fn8) Although in 1998 the Georgia General Assembly amended the Georgia Securities Act of 1973 to achieve some level of consistency with the National Securities Markets Improvement Act, the Uniform Securities Act of 2002 and the Georgia Uniform Securities Act were purposely crafted to meet the National Securities Markets Improvement Act's mandates and objectives as well as to make other changes designed to create more consistency in state regulation of securities transactions.(fn9)
When the Georgia Uniform Securities Act becomes effective in July 2009, practitioners will notice that several significant changes accompany the benefits of diminished regulatory overlap and enhanced uniformity. Practitioners will find key differences, for instance, in the provisions governing registration exemptions for securities instruments and professionals, the statute of limitations for civil actions and enforcement administration.
Securities Exemptions-Article 2
Limited Offering Exemption
The Georgia Uniform Securities Act is divided into seven articles.(fn10) Article 2 of the Act addresses registration exemptions that apply to securities and to securities transactions. Article 2 amends many of the exemptions that were available under the Georgia Securities Act of 1973. One of the most used exemptions for small companies, the limited offering exemption set forth in Section 10-5-9(13), has several noteworthy changes. This exemption is now contained in Section 10-511(14) in the Georgia Uniform Securities Act and differs from prior law in that the exemption no longer requires that complying issuers and non-issuers place legends on the securities instruments or that each Georgia purchaser execute a "purchase for investment" statement.(fn11) Section 10-5-11(14) keeps the prohibition against general solicitations and the 15 Georgia purchaser maximum requirement intact, but institutes a new prohibition against commissions for solicitation-related activities and a requirement that the sale and offer be "part of a single issue."(fn12) Although the "purchase for investment" statement is no longer required, Section 10-511(14) does require that the issuer or non-issuer reasonably believe that all Georgia purchasers are purchasing for investment.(fn13)
Based on these requirements, the popularity and utility of the limited offering exemption will likely continue to increase in Georgia. The changes to the instrument legend and executed purchaser statement requirements should especially lessen the administrative burden on issuers and non-issuers in Georgia that engage in exempt limited offerings and reduce inadvertent noncompliance by some entities. The changes will not, however, affect essential safeguards and limits (placing the burden of proof on those who assert exemptions, prohibitions against fraud, orders imposing restrictions on or revoking exemptions and well-established strict construction principles with regard to exemptions).(fn14) In addition, those attempting to rely on the revised exemption will likely need substantive knowledge of what constitutes a single issue because integration of two separate securities issues can destroy the limited offering exemption.(fn15)
Employee Benefit Plan Exemption
Another significant exemption change that practitioners may notice concerns securities transactions in connection with employee benefit plans. Under the Georgia Securities Act of 1973, securities transactions related to employee benefit plans are generally exempt from state registration requirements. Sections 10-5-9(7) and 10-59(9), for instance, exempt transactions involving securities sales related to employee pension plans, profit-sharing plans, stock bonus plans, stock purchase plans, retirement plans and stock option plans when certain requirements are met. The employee benefit plan exemption is an important exemption. The ESOP Association, which assists companies that provide stock ownership plans to their employees, estimates that in the United States 10 percent of the private sector workforce is compensated in part through employee stock ownership plans.(fn16) Indeed, many prominent companies count thousands of participants in their employee stock ownership plans.(fn17)
Given the prevalence of stock ownership plans, practitioners advising large and small corporations will likely find the Georgia Uniform Securities Act's revisions to the registration exemption provision on stock option plans remarkable.(fn18) Under prior law, a registration exemption was available for transactions involving stock option plans only if those plans were limited to employees of the issuer or employees of the issuer's affiliate.(fn19) Accordingly, stock option plans that included consultants or advisers were prohibited from using Section 10-59(9). This limitation was an effort to be consistent with the exemption's compensatory purpose. Nevertheless, the Securities and Exchange Commission (SEC) has emphasized that securities issuances to consultants and advisers also can be for compensatory and not capital raising purposes.(fn20) Acknowledging the validity of the SEC's reasoning, the Georgia Uniform Securities Act's employee benefit plan exemption set forth in Section 10-5-11(21) now allows consultants and advisers to participate in stock option plans. This is a significant expansion of the prior exemption for corporations that...