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Exemptions from Securities Registration

Under federal law, a “security” is defined liberally in 15 U.S.C. 77b(a)(1) as:

any note, stock, treasury stock, security future, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, any put, call, straddle, option, or privilege on any security, certificate of deposit, or group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency, or, in general, any interest or instrument commonly known as a “security”, or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing.

The Missouri Securities Act defines a “security” in a similar fashion (in the interest of simplicity, think of a security as almost any sort of financial instrument). Accordingly, securities are regulated at both the federal and state levels (collectively, state regulations of securities are referred to as “blue sky laws”). These two tiers of laws are voluminous. Seemingly every aspect of securities transactions is regulated to some extent. However, one of the two most prominent areas of regulation is the registration of securities both at the federal and state level (the other prominent area of regulation being securities fraud, misrepresentation — e.g., Insider Trading).

It should be noted, though, that there are several exemptions from registration contained in federal and state law. This is for good reason. Given the broad definition of “security,” there needed to be several exclusions from registration to avoid undue regulation en masse.

Federally, there are exemptions for certain securities under 77(c) and certain transactions under 77(d). Both sections articulate a laundry list of exemptions. For instance, under 77(c), insurance policies and those securities offered and sold only to residents within a single State or Territory are exempt. Moreover, under 77(d), an exempt transactions include “transactions by an issuer not involving any public offering.”

Missouri mimics federal law by also exempting certain securities and transactions from registration. RSMo 409.2 (201) handles exempt securities, while RSMo 409.2(202) handles exempt transactions. An example of an exempt security are securities issued/guaranteed by a railroad or other “common carrier.” An example of an exempt transaction includes employee stock purchases, options, profit sharing plans, and pensions.

Securities registration is stressful, time-consuming, and can be extremely expensive (attorney fees will be high given the amount of that will likely be required and both the federal and state securities commissions require registration fees). It is also something that needs to be done precisely to comply with SEC Rules and Missouri Blue Sky Laws to avoid civil liability (and criminal liability exists for intentional and willful securities violations). As such, it is generally very desirable to attempt to pigeon-hole an offering of securities into an exemption.

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