REG Chapter 8 Part 1: Federal Securities Regulation

Just two more chapters left in business law

Just two more chapters in business law. These are the boring chapters and won’t be heavily tested on the exam. However, you should have a brief understanding just incase there are one or two questions on the exam. Here are today’s learning outcomes:

  • Summarize the various securities laws and regulations that affect corporate governance with respect to the Federal Securities Act of 1933 and the Federal Securities and Exchange Act of 1934.
  • Identify violations of the various securities laws and regulations that affect corporate governance with respect to the Federal Securities Act of 1933 and the Federal Securities and Exchange Act of 1934.

Securities Act of 1933

The securities act of 1933 has two main objectives:

  • require that investors receive financial and other significant information concerning securities being offered for public sale; and
  • prohibit deceit, misrepresentations, and other fraud in the sale of securities.

Registration of Securities

The SEC requires public companies to disclose important financial information through the registration of securities. This information gives investors, not the government, relevant information about whether to purchase a company’s securities.

Registration Process

Generally, securities sold in the United States must be registered through the SEC. The registration form calls for:

  • a description of the company’s properties and business;
  • a description of the security to be offered for sale;
  • information about the management of the company; and
  • financial statements certified by independent accountants.

Exemptions to Registration

Not all securities must be registered through the SEC. Some examples are as follows:

  • private offerings to a limited number of persons or institutions;
  • offerings of limited size;
  • intrastate offerings; and
  • securities of municipal, state, and federal governments.

Securities Act of 1934

The securities act of 1934 created the Securities and Exchange Commission (SEC) and empowers the SEC with authority over all aspects of the securities industry. This includes the power to register, regulate, and oversee:

  • brokerage firms
  • transfer agents
  • clearing agencies
  • securities self-regulatory organizations (SROs).

Corporate Reporting

Companies with more than $10 million in assets whose securities are held by more than 500 owners must file annual and other periodic reports.

Proxy Solicitations

Solicitations, whether by management or shareholder groups, must be filed with the SEC and must disclose all important facts concerning the issues on which holders are asked to vote.

Tender Offers

The SEC requires disclosure of important information by anyone seeking to acquire more than 5 percent of a company’s securities by direct purchase or tender offer.

Insider Trading

The SEC prohibits insider trading. Insider trading is defined as the illegal trade of a security while in possession of material nonpublic information in violation of a duty to withhold the information or refrain from trading.

Key Takeaways

  • This chapter is not heavily tested on the exam so don’t memorize everything in this lesson.
  • Securities Act of 1933 creates registration requirements.
  • Securities Act of 1934 creates the enforcement of securities registration.
  • Know the two acts and the major requirements.
  • For more information, checkout the SEC website.

Jeremias Ramos is a CPA working at a nationally recognized full-service accounting, tax, and consulting firm with offices conveniently located throughout the Northeast. Jeremias specializes in tax and business consulting with focus areas in real estate, professional service providers, medical practitioners, and eCommerce businesses.

1 comment on “REG Chapter 8 Part 1: Federal Securities Regulation

  1. Enrique

    Thank you!

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