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Series 63 practice questionmediumExempt Transactions — Preorganization Certificates

A training manager asks you to analyze the following USA issue. Prioritize the registration trigger and ignore irrelevant noise. A group of entrepreneurs collects preorganization subscriptions from 15 individuals for a new corporation. No payment has been collected, but a sales agent was paid a commission for finding subscribers. Is this offering exempt from state registration?

  1. AYes, because no payment was collected from subscribers
  2. BYes, because preorganization certificates are always exempt
  3. CNo, because commissions were paid for soliciting subscribers, violating a condition of the exemption✓ Correct answer
  4. DNo, but only because the number of subscribers exceeds the limit
Explanation

Why C — No, because commissions were paid for soliciting subscribers, violating a condition of the exemption

Under USA Section 402(b), the preorganization certificate exemption requires that no commission or remuneration be paid for soliciting subscribers. Even though no payment was collected from subscribers, paying a commission to a sales agent disqualifies the offering from this exemption. Both the payment of commissions and exceeding the subscriber limit would be violations here. This variant keeps the same legal rule but shifts the setup so recall has to stay flexible.

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