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14 September 2026
Registration of Securities: Notification, Coordination, and Qualification
A newly formed technology company, based and operating exclusively within a single state, plans to offer its common stock to residents of that state. The company has no prior publicly traded securities and will not be listing on a national exchange. While the offering seeks to rely on an exemption from federal registration under the Securities Act of 1933, it does not meet the criteria for any transactional exemption under the Uniform Securities Act, meaning the security itself must be registered at the state level. In this scenario, which statement most accurately describes the required registration method and the state Administrator's authority?
A.The security must be registered by qualification, granting the state Administrator broad authority to examine the issuer's books, impound proceeds, and require escrow of promotional stock.
B.The security must be registered by coordination, provided the company simultaneously files a Form D with the SEC, and the state Administrator's review period aligns with the federal effective date.
C.The security is considered a federal covered security due to its federal registration exemption, requiring only a notice filing and consent to service of process with the state Administrator.
D.The security must be registered by notification, as it is an intrastate offering from a domestic issuer, and the state Administrator's review is generally limited to completeness of the filing.
Rationale:
The scenario describes a new, unseasoned issuer conducting an intrastate offering that is exempt from federal registration but requires state registration under the Uniform Securities Act. Since there is no concurrent federal registration statement (e.g., an S-1 filing), registration by coordination is not an option. Registration by notification is typically reserved for more established issuers that meet specific financial and operational criteria (e.g., minimum business history, earnings, no defaults), which a 'newly formed technology company' would not meet. Therefore, registration by qualification is the appropriate and default method for such an offering. Qualification grants the state Administrator the most extensive powers, including the authority to require escrow of promotional shares, impound proceeds from the offering, and thoroughly examine the issuer's books and records, ensuring investor protection for novel offerings from new issuers.
The option suggesting registration by coordination is incorrect because coordination explicitly requires a concurrent federal *registration statement* (not just a federal exemption like a Form D filing for Regulation D offerings), which the scenario explicitly states is not occurring.
The option claiming the security is a federal covered security is incorrect. A federal exemption from registration (such as for an intrastate offering) does not automatically make a security a 'federal covered security' under NSMIA. Federal covered securities are those preempted from state registration, like exchange-listed securities or investment company shares. An intrastate offering, while federally exempt, is fully subject to state registration requirements unless a specific state exemption applies, which the scenario states it does not.
The option proposing registration by notification is incorrect because notification is generally used by seasoned issuers that meet specific financial metrics and have a longer operating history. A 'newly formed technology company' conducting its initial offering would not qualify for registration by notification.
