Capital raising through a public offering of securities is strictly regulated by the provisions of the federal Securities Act of 1933 (“Securities Act”) and the Exchange Act of 1934 (“Exchange Act”). The focus of the Securities Act is the disclosures and liabilities involved in the offer and sale of securities to the investment community, in both private and public offerings. Under Section 5 of the Securities Act, offers and sales of securities must be registered with the federal Securities and Exchange Commission (“SEC”) unless one of the exemptions from registration included in Sections 3 and 4 of the Securities Act is available. Disclosures in the registration statement are intended to include all of the material information regarding the issuer and the terms of the offering and the Securities Act contains provisions designed to insure that the information is disseminated to the investment community before the offering is completed. The SEC has no authority to rule upon the merits of an offering and lacks the resources necessary to conduct an independent review of all of the facts and statements contained in the registration statement. However, the SEC can prevent the securities from being distributed where such disclosure requirements are not fully met by preventing or suspending the effectiveness of the registration statement.
The basic purposes of the Exchange Act are to regulate securities exchanges and the securities market; to make available to persons who buy and sell securities information relating to the issuers of such securities; to prevent fraud in securities trading and manipulation of markets; and to control the amount of credit which may be used in the securities market. The provisions of the Exchange Act relate primarily to the activities of issuers and their affiliates after their securities have been distributed into the public market. The Exchange Act requires the registration of each class of an issuer’s publicly traded securities with the SEC, as well as the filing of periodic and other reports with the SEC and securities exchanges by those issuers and its officers, directors and controlling shareholders. The Exchange Act also regulates the solicitation of proxies with respect to registered issuers, as well as tender offers and other specified transactions. Finally, the Exchange Act establishes a number of rules relating to the creation and operation of the securities markets, including requirements applicable to broker-dealers, stock exchanges, clearing agencies and transfer agents.
This month’s update to Business Transactions Solution on WESTLAW includes new Business Counselor’s Training Materials for public offerings and public company status (see §288:162) that covers the applicable regulatory framework; considerations in selecting public financing; advantages and disadvantages of public company status; disclosure requirements; underwriting and distribution arrangements; exchange listings and secondary trading and public company status.