What is a Section 3 exemption from registration under the 33 Act?

Section 3(a) Exemption - Section 3(a)(11) is an intrastate offering exemption designed to allow businesses to seek local funding. The issuer may offer securities for sale to residents of the state in which the business primarily does business without registering the issuance or securities with the SEC.

Note: Issuers of securities pursuant to the section 3(a)(11) statutory exemption must be careful that no offer is made to prospective out-of-state purchasers. Even one offer to a non-resident will destroy the exemption. Issuers can use the legal fiction of publishing information likely to go only to intrastate residents with a legend, this is an offer only to in-state residents to try to protect themselves.

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What is an Exempt Security? 

Section 3(a)(11) offers an exemption for a class of securities, rather than an exemption for the particular issuance or transaction. The securities can be freely resold without worrying about registration.

What are the Benefits of Section 3 Exemptions? 

The exemption is attractive to issuers because it allows for: an unlimited number of investors, an unlimited amount of raised capital, and general solicitation of investors may be allowed under the applicable state law.

What does it mean for a security to Come to Rest? 

Purchasers cannot immediately resell the security, as that resale may involve out-of-state purchasers. If the securities have not come to rest then resale out of state destroys the exemption for the entire offering.

Note: The issuer must encourage purchasers to avoid immediate resale in order to avoid the appearance of a sham attempt to achieve a non-intrastate offering.

What is the Integration Doctrine?

The integration doctrine applies to Section 3 issuances. This doctrine states that any offering of securities by the issuer within the last 12 months may be integrated into the current offering. Even if the other offerings were under another exemption, they may be integrated into a single transaction. If the issuances are integrated, it is possible that the prior offering will cause the loss of the registration exemption for the present and former transactions.

Note: The result of a failed exemption is that any purchasers in either offering may seek to rescind the transaction.

Related Topics

• Securities Law (Intro)
• What are Securities Laws?
• What is a Security?
• What qualifies as an Investment contract?
• What are the primary federal securities laws?
• What are the regulatory goals of security laws?
• What is the Securities and Exchange Commission?
• What is an Initial Public Offering?
• What is a Direct Public Offering?
• What is Crowdfunding?
• Securities Act of 1933
• What is an Offer to Sell securities?
• Who are the parties regulated in an offer to sell securities?
• What are the primary disclosure documents required in an offer to sell securities?
• Forward Looking
• Red Herring Prospectus (Securities) Definition
• Registration of Securities
• What is an issuer allowed to do at each stage of the registration process?
• How are issuers classified for purposes of the registration and offering process?
• What is an issuer allowed to do during the Pre-filing Period?
• What are the limitations on the issuer during the Post-filing, Waiting Period?
• What is an issuer allowed to do during the Post-Effective Period?
• What is an Emerging-Growth Company?
• What type of information must an issuer disclose?
• What laws govern the mechanics of disclosure in a securities offering?
• Deficiency Letter (Securities Law)
• Registration Exemptions Securities Act of 1933
• What are Exempt Securities and Exempt Transactions?
• What are Restricted Securities?
• Section 3(a)?
• Section 3(b)?
• What is a Rule 147 Exemption?
• What is a Section 4(a) Exemption?
• Section 4(a)(5)?
• What is a Regulation A Exemption?
• What are Regulation D Exemptions?
• What is a Rule 504 Exemption?
• What is a Rule 505 Exemption?
• What is a Rule 506(b) Exemption?
• What is a Rule 506(c) Exemption?
• What is Rule 502(d) and the Rule 144 Safe Harbor?
• Rule 144a
• What are the disclosure requirements for companies employing an exemption?
• What is the requirement to file Form D?
• What is the effect of failing to register an offering under Section 5?
• Liability Under the Securities and Exchange Act of 1933
• What is civil liability under Section 11 of the 33 Act?
• What is civil liability under Section 12 of the 33 Act?
• What are defenses available to charges under Sections 11 and 12?
• What is civil liability under Section 17 of the 33 Act?
• What is potential criminal liability under the 33 Act?
• The Security Exchange Act of 1934
• When must an issuer register pursuant to the 34 Act?
• What disclosures are required of reporting companies under the 34 Act?
• What is liability under Section 10(b) and Rule 10(b)(5)?
• What is insider trading under Rule 10(b)(5)?
• What damages are available under Section 10 and Rule 10(b)(5)?
• What is insider trading under Section 14 of the 34 Act?
• What is liability under Section 16 of the 34 Act?
• What is liability under Section 18 of the 34 Act?
• What is criminal liability under the 34 Act?
• Liability under the Securities Enforcement Remedies Act?
• Blue Sky Laws State Securities Laws
• What are Blue Sky Laws?
• When is an issuer required to comply with state securities laws?
• What are the registration requirements under state law?
• What is Coordinated Registration under state law?