Leach TB Chap08 Ed3


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CHAPTER 8 SECURITIES LAW CONSIDERATIONS WHEN OBTAINING VENTURE FINANCING True-False Questions T. 1. The securities Exchange act of 1934 provides for the regulation of securities exchanges and over-the-counter markets. T. 2. The Investment Company Act of 1940 defines investment companies and excludes them from using some of the registration exemptions originating in the 1933 Act. F. 3. The Investment Advisers Act of 1940 provides a definition of an investment company. T. 4. The two basic types of exemptions from having to register securities with the SEC are security and transaction exemptions. T. 5. SEC Rule 147 provides guidance on the issuer’s diligent responsibilities in assuring that offerees are in-state and that securities don’t move across state lines. T. 6. A private placement, or transactions by an issuer not involving any public offering, is exempt from registering the security. F. 7. Accredited investors are those that the Securities Act of 1933 seek to protect from unscrupulous individuals issuing securities. F. 8. SEC Regulation D requires the registration of securities with the SEC. T. 9. An early stage venture that is not an investment company and has written compensation agreements can structure compensation-related securities issues so they are exempt from SEC registration requirements. F. 10. State laws designed to protect high net-worth investors from investing in fraudulent security offerings is know as blue-sky laws. T. 11. The Securities Act of 1933 is the main body of federal law governing the creation and sale of securities in the U.S. F. 12. SEC Regulation D took effect in 1932 and provides the basis for “safe harbor” as a private placement. 52
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Chapter 8: Securities Law Considerations When Obtaining Venture Financing F. 13. Rule 504 under Regulation D has a $2 million financing limit (i.e., applies to sales of securities not exceeding $2 million). T. 14. A Rule 504 exemption under Regulation D has no limit in terms of the number and qualifications of investors. T. 15. A Regulation D Rule 505 offering cannot exceed $5 million in a twelve- month period. F. 16. A Regulation D Rule 505 offering is limited to 35 accredited investors. T. 17. A Regulation D Rule 506 offering has no limit in terms of the dollar amount of the offering but is limited to 35 unaccredited investors. T. 18. Regulation A, while technically considered an exemption from registration, is a public offering rather than a private placement. T. 19. Regulation A issuers are allowed to “test the waters” before preparing the offering circular (unlike almost all other security offerings). F. 20. Regulation A offerings are limited to $10 million but do not have limitations on the number or sophistication of offerees. F.
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