Can You Pay Commission to Unregistered Sellers for Regulation A+ Shares?

Question from Johnny1, Can You Pay Commission to Unregistered Sellers for Regulation A+ Shares?

Answer from AI:

When it comes to selling shares of a company, especially under Regulation A+ in the United States, there are specific rules and regulations set by the Securities and Exchange Commission (SEC) that must be followed. One common question that arises is whether a company can legally pay a commission to someone who is not registered with the SEC for selling its shares. This is a nuanced area of securities law, and understanding the basics is crucial for compliance.

Understanding Regulation A+

Regulation A+ is part of the U.S. securities law that allows smaller companies to raise capital from the public with less regulatory burden compared to a traditional IPO. It’s divided into two tiers, each with its own set of rules regarding the amount of money that can be raised and the financial disclosures required.

The Role of the SEC

The SEC plays a critical role in protecting investors and maintaining fair, orderly, and efficient markets. Part of this role involves regulating who is allowed to sell securities, including shares of companies. Generally, individuals or entities that are involved in selling securities or advising on securities must be registered with the SEC or qualify for an exemption.

Can You Pay Commission to Unregistered Individuals?

Generally, the answer is no. Paying a commission to someone for selling shares of your company, under Regulation A+ or otherwise, typically requires that the individual or entity be registered with the SEC as a broker-dealer or qualify for an exemption. This requirement is in place to ensure that those selling securities are knowledgeable about the laws and regulations governing securities transactions and are acting in the best interests of investors.

Exceptions and Exemptions

There are limited exceptions and exemptions to this rule, but they are narrowly defined and strictly interpreted. For example:

• Some activities might not be considered “selling securities” under the law, and thus might not require broker-dealer registration. However, this is a complex determination that depends on the specifics of each case.
• There are exemptions for certain types of transactions and for certain roles that do not involve the traditional activities of a broker-dealer. For instance, “finders” who introduce investors to issuers without engaging in negotiating or advising on the sale might not need to be registered, depending on the circumstances.

Why Compliance Matters

Failing to comply with SEC regulations regarding the sale of securities can lead to significant legal and financial consequences, including fines, disgorgement of profits, and even criminal charges. It’s crucial for companies to understand and adhere to these regulations to avoid such outcomes.

Steps to Ensure Compliance

1. Consult with a Securities Attorney: Given the complexity of securities laws, consulting with an attorney who specializes in this area is the best way to ensure compliance.
2. Understand the Requirements: Familiarize yourself with Regulation A+ and the requirements for selling securities, including who can legally sell them and under what conditions.
3. Consider Registration or Find an Exemption: If you plan to pay commissions for the sale of shares, ensure that the individuals or entities involved are properly registered or qualify for an exemption.

Conclusion

While the idea of paying a commission to someone for selling shares of your Regulation A+ company might seem like an effective way to raise capital, it’s important to proceed with caution and ensure that all activities are in compliance with SEC regulations. The legal landscape surrounding the sale of securities is complex, and missteps can have serious consequences. Always seek professional legal advice to navigate these waters safely.

For more information on Regulation A+ and the requirements for selling securities, visit the SEC’s Regulation A+ page.