Regulation CE makes certain issues of securities exempt from registration requirements mandated by the Securities Act of 1933—as long as the issuers satisfy the conditions of paragraph (n) of Sec. 25102 of the California Corporations Code. Section 25102(n) exempts offerings to qualified purchasers and includes a “test the waters” provision that allows issuers to publish and share a general announcement of the proposed offering in writing both to qualified and non-qualified investors.
Adopted by the Securities and Exchange Commission (SEC) in 1996, Regulation CE, which provides a coordinated federal-state exemption, is intended to ease the regulatory hardships experienced by small businesses issuing securities, thereby making it easier for them to raise funds. These small businesses comprise California corporations, other business entities organized under California law and other corporations with substantial California ties. The federal-state exemption defers to the California state exemption, which allows California authorities to determine the scope of the exemption.
That said, Regulation CE does impose two federal requirements, the first of which limits offerings to $5 million. The second only allows “restricted securities” in a Regulation CE transaction—meaning, securities can only be resold if the resale is registered with the SEC or the resale is made exempt from this requirement.
The issuer must provide a written disclosure to the purchaser at least five days before the securities are sold or a commitment to purchase is accepted from the purchaser. The disclosure statement must meet the requirements of Regulation D of the Securities Act. It must also include information as required by the California Commissioner of Corporations.
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