The Security Exchange Commission (SEC) exempts the Langley Brothers, Inc. Company from registration. To begin with, noninvestment private companies that offer common stock worth less than $5 million for a period not more than twelve months, according to the Security and Exchange Act (SEA), have exemption. This occurs irrespective of the number of accredited investors engaged in the transactions of the company. These investors are not only knowledgeable about financial operations but also receive income above a certain minimum limit. Moreover, the exemption holds only when the unaccredited investors are not more than thirty-five. In case of sales involving any unaccredited investor, the company must provide relevant information to all the investors to reduce fraud cases that may occur before, during, or after sales. The relevant information includes the following: history of the company, its business activities, and the securities on sale. There is an assumption that the unaccredited investors do not have knowledge and financial experience to evaluate the liabilities and benefits of such investment (Miller & Cross, 2007). Since the offer is to the public, the company only notifies the SEC of intended sales.
Additionally, according to section 3(a) (11) of the SEA, “intrastate offering exemption,” Langley Brothers, Inc. Company needs no registration; the company is only offering the stock to the residents of Kansas State. Further, it is incorporated and does business activities within the same state. Therefore, to avoid violation of the Security Act registration requirements, the company must identify the residential areas of all purchasers. A purchaser is also under obligation not to resell the security to a foreigner within nine months after the company’s offering is over because this may violate the SEA (“Securities and Exchange Commission (SEC) Exemptions – SmallBusinessNotes.com,” n.d.). Langley Brothers, Inc. Company should, therefore, negotiate directly with the purchasers who know their residences. Since the company does not also own assets in other states, it further qualifies for exemption.
Langley Brothers, Inc. Company also qualifies for exemption by offering to sell securities worth $1 million to the public. The company can decide to sell the securities to a limited number of accredited investors. This exemption does not allow public soliciting and advertisement. Since all transactions are within the security laws, there is no need for documentation. Langley Brothers, Inc. Company will be cautious since these securities are restricted and reselling is only through an exempt transaction or registration (Miller & Cross, 2007).
The company will not be subject to registration requirements like other companies. Nonetheless, it must submit to the SEC an offering statement, containing a notification, offering exhibits, and circulars (“Securities and Exchange Commission (SEC) Exemptions – SmallBusinessNotes.com,” n.d.). Similarly, the company in bid to avoid fraudulent cases and enhance transparency will also furnish the SEC with their detailed business operation. Moreover, Langley Brothers, Inc. Company offer of $1 million is below the limits set for registration requirements. However, the directors must ensure that the investors receive information, which are free from lies and misleading reports.
Even though Langley Brothers, Inc. Company offering meet the SEA requirements, for exemption, this does not mean that it is above the Kansas state laws. The company must abide by the Kansas security laws, so long as it is still selling securities. Therefore, the company does not need to register with the SEC.
References
Miller, R. L., & Cross, F. B. (2007). The Legal Environment Today: Business in its Ethical, Regulatory, E-Commerce, and International Setting (5th ed.). Mason, Ohio: Thomson/West.
Securities and Exchange Commission (SEC) Exemptions – SmallBusinessNotes.com. (n.d.). Small Business Resources & Tips – Small Business Notes. Web.