In a remedial practice session, the fact pattern is framed this way. Read it as a Uniform Securities Act issue rather than a federal-law issue. A corporation offers additional shares exclusively to its existing shareholders as part of a stock dividend. Is this transaction exempt from state registration?

AYes, transactions with existing security holders where no commission is paid are exempt from registration✓ Correct answer
BNo, all new share issuances must be registered
CNo, unless the shares are also registered with the SEC
DYes, but only if fewer than 10 shareholders participate

Explanation

Why A — Yes, transactions with existing security holders where no commission is paid are exempt from registration

Under USA Section 402(b), transactions by an issuer with its existing security holders are exempt from registration, including stock dividends and other distributions, provided no commission or remuneration is paid for soliciting the existing shareholders. This exemption recognizes that existing holders already have a relationship with the issuer. State-law analysis leads to the same conclusion despite the alternate scenario.

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