52
CHAPTER 8
SECURITIES LAW CONSIDERATIONS WHEN OBTAINING
VENTURE FINANCING
True-False Questions
exchanges and over-the-counter markets.
excludes them from using some of the registration exemptions originating in
the 1933 Act.
company.
classified as an “investment advisor”.
creation and sale of securities in the U.S.
passed in 1934.
of 1954.
firms) is carried out under the Investment Company Act of 1940.
fraudulent security offerings are known as blue-sky laws.
1933 and state blue-sky laws.
investing in fraudulent security offerings.
a partnership or LLC.
Chapter 8: Securities Law Considerations When Obtaining Venture Financing
53
owners’ investments.
corporation.
the SEC are security and transaction exemptions.
constitutes a security.
assuring that offerees are in-state and that securities don’t move across state
lines.
offering, is exempt from registering the security.
1933 from investing in unregistered securities issues.
a partnership or LLC.
important step toward defining a public offering for the purposes of Section
4(2) of the Securities Act of 1933.
compensation agreements can structure compensation-related securities issues
so they are exempt from SEC registration requirements.
harbor” as a private placement.
to sales of securities not exceeding $2 million).
Chapter 8: Securities Law Considerations When Obtaining Venture Financing
54
number and qualifications of investors.
month period.
amount of the offering but is limited to 35 unaccredited investors.
registration, is a public offering rather than a private placement.
offerings so long as all investors are considered to be financially sophisticated.
offering circular (unlike almost all other security offerings).
limitations on the number or sophistication of offerees.
stimulate the initiation, growth, and development of small business companies.
advertising restriction for Regulation D 506 offerings.
Note: Following are true-false questions relating to materials presented in
Appendix B of Chapter 8.
Act of 1933, was expanded in Rule 501 of Reg D.
accredited investors as defined in Regulation D Rule 501 is a net worth greater
than $1,000,000.
accredited investors as defined in Regulation D Rule 501 is individual annual
income greater than $500,000.
Chapter 8: Securities Law Considerations When Obtaining Venture Financing
55
privately-placed securities.
within six months after the first sale of securities.
Multiple-Choice Questions
a. it was passed in response to abuses thought to have contributed to
the financial catastrophes of the Great Depression
b. it covers securities fraud
c. it requires securities to be registered formally with the federal
government
d. it set of the nature and authority of the Securities and Exchange
Commission
e. it focuses on those who provide investment advice
a. Securities Exchange Act of 1934
b. Securities Act of 1933
c. Investment Company Act of 1940
d. Investment Advisers Act of 1940
the following securities laws?
a. Securities Act of 1933
b. state “blue–sky” laws
c. Securities and Exchange Act of 1934
d. Investment Company Act of 1940
e. Investment Advisers Act of 1940
which of the following securities laws?
a. Securities Act of 1933
b. state “blue–sky” laws
c. Securities and Exchange Act of 1934
d. Investment Company Act of 1940
e. Investment Advisers Act of 1940
f. Both a and b
g. Both a and c
a. ignorance is no defense
Chapter 8: Securities Law Considerations When Obtaining Venture Financing
56
b. security regulators may alter your investment agreement to the
benefit of the investors
c. Securities Act of 1933 gives the SEC broad civil procedures to use
in enforcement
d. Securities Act of 1933 gives the SEC some criminal procedures to
use in enforcement
e. a, b, and c above
f. a, b, c, and d above
a. treasury stock
b. debenture
c. put option
d. real property
e. call option
a. Regulation A legislation
b. “stormy day” laws
c. “blue sky” laws
d. SEC oversight legislation
SEC?
a. it is a time consuming process
b. it required the disclosure of accounting information
c. it is usually done with the help of an investment bank
d. it is an inexpensive process
e. it provides information to prospective investors
except?
a. Treasury securities
b. Municipal bonds
c. securities issued by publicly held companies
d. securities issued by banks
e. securities issued by the government
round financing are typically organized as:
a. proprietorships or partnerships
b. LLCs or corporations
c. corporations
d. partnerships or LLCs
e. proprietorships or corporations
Chapter 8: Securities Law Considerations When Obtaining Venture Financing
57
business organizational forms?
a. proprietorship
b. limited liability company (LLC)
c. corporation
d. S corporation
e. S limited liability company (SLLC)
securities with the SEC?
a. the name under which the issuer is doing business
b. the name of the state where the issuer is organized
c. the names of all products sold by the issuer
d. the names and addresses of the directors
e. the names of the underwriters
“fouled up” securities offering is called:
a. just action
b. fraud
c. second round financing
d. a rescission
e. mezzanine financing
the following:
a. securities issued by banks and thrift institutions
b. government securities
c. intrastate offerings
d. securities issued by large, high quality corporations
e. a, b, and c above
f. a, b, c, and d above
are: a. private placement exemption
b. “too big to fail” exemption
c. accredited investor exemption
d. intrastate offering exemption
e. a and c above
f. b and d above
Chapter 8: Securities Law Considerations When Obtaining Venture Financing
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the following were considerations in determining an offering to be a private
placement except:
a. there must be an arm’s length relationship between the issuer of the
security and the prospective purchaser
b. the number of offerees must be limited
c. the size and the manner of the offering must not indicate
widespread solicitation
d. the offerees must be sophisticated
e. some relationship between the offerees and the issuer must be
present
harbor” as a private placement?
a. Regulation A
b. Regulation B
c. Regulation C
d. Regulation D
e. Regulation E
1933 requires you to file a registration statement with the SEC?
a. Section 1
b. Section 2
c. Section 3
d. Section 4
e. Section 5
offering exempt from SEC registration?
a. 4(2) private offering
b. accredited investor
c. Regulation D
d. Regulation A
e. Regulation Z
amount of $2 million are handled under which one of the follow rules under
Regulation D?
a. Rule 501
b. Rule 502
c. Rule 503
d. Rule 504
e. Rule 505
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59
limit in a 12-month period and permits a maximum of 35 unaccredited
investors?
a. Section 4(2)
b. Reg D: Rule 504
c. Reg D: Rule 505
d. Reg D: Rule 506
e. Regulation A
a. 35
b. 100
c. 35 unaccredited investors and any number of accredited investors
d. there is no limit on the number of accredited or unaccredited
investors
raise up to $5 million in a:
a. 6-month period
b. 9-month period
c. 12-month period
d. 18-month period
e. 24-month period
unaccredited investors to:
a. 20
b. 25
c. 30
d. 35
e. 40
financing limit?
a. Rule 504
b. Rule 505
c. Rule 506
d. Rule 507
e. Rule 508
interpretation of the law has stipulated that:
a. the investors must be sophisticated
b the number of investors must be limited to 35
c. the funds must be raised within a 12-month period
Chapter 8: Securities Law Considerations When Obtaining Venture Financing
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d. the offering must be extended to the public, and not only investors
who have a relationship with the issuer
unaccredited investors and 5 accredited investors, might be exempt from
registration under:
a. Section 4(6)
b. Regulation D: Rule 504
c. Regulation D: Rule 505
d. none of the above
a. An offering is limited to $5 million
b. the number offerees or investors is limited to 35
c. the offering is a public offering
d. the securities issued can generally be freely resold
a. it is shorter and simpler than the full registration
b. it does not have limitations on the number or sophistication of
offerees.
c. it is a public offering rather than a private placement
d. it can generally be freely sold
e. it requires no offering statement be filed with the SEC
offering?
a. Section 4(2)
b. Rule 501
c. Rule 505
d. Rule 506
e. Regulation A
a. issuers are allowed to test the waters prior to preparing the offering
circular
b. after filing a SEC statement, the issuer can communicate with
perspective investors orally, in writing, by advertising in newspapers,
radio, television, or via the mail to determine investor interest
c. issuers can take commitments or funds
d. there is a formal delay of 20 calendar days before sales are made
e. if the interest level is insufficient, the issuer can drop Regulation A
filing
Chapter 8: Securities Law Considerations When Obtaining Venture Financing
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a. establishes a new business classification called “Emerging Growth
Company”
b. lifts restrictions on general solicitation and advertising for Reg D
506 accredited investor offerings
c. establishes a small offering registration exemption and calls for
SEC rules relating to the sales of securities to an Internet :crowd”
(security crowd funding)
d. a and b above
e. a, b, and c
Note: Following are multiple-choice questions relating to materials presented in
Appendix B of Chapter 8.
Which is not one of the categories?
a. any organization formed for the specific purpose of acquiring
securities with assets in excess of $5 million
b. any director or executive officer of the issuer of securities being
sold
c. any individual whose net worth exceeds $1 million
d. any partnership
e. any trust with total assets greater the $5 million
Rule 502?
a. integration
b. offering
c. information
d. solicitation
e. resale
investors under Regulation D Rule 501?
a. net worth greater than $5 million
b. total assets greater than $1 million
c. individual (single) annual income greater than $200,000
d. stock market portfolio greater than $2 million
e. all of the above
a. integration
f. information
g. solicitation
h. resale
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i. a and b above
e. a, b, c, and d above
within how many days after the first sale of securities?
a. 1 day
b. 15 days
c. 30 days
d. six months
e. one year
securities (including, but not limited to, securities safely harbored in Rules 505
and 506 offerings) is:
a. Rule 111
b. Rule 122
c. Rule 133
d. Rule 144
e. Rule 147