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← Series 63: Regulation of Securities & Issuers
Series 63 practice questionmediumExempt Transactions — Existing Security Holders

In a remedial practice session, the fact pattern is framed this way. The key is the registration, exemption, or ethical rule doing the real work. A corporation offers additional shares exclusively to its existing shareholders as part of a stock dividend. Is this transaction exempt from state registration?

  1. AYes, transactions with existing security holders where no commission is paid are exempt from registration✓ Correct answer
  2. BNo, all new share issuances must be registered
  3. CNo, unless the shares are also registered with the SEC
  4. 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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