Series 63 practice questionmediumPreorganization Subscription—Purpose
What is the primary purpose of the preorganization subscription exemption in the Uniform Securities Act?
- ATo allow companies to raise any amount of capital before formation
- BTo allow persons to agree to purchase securities of a to-be-formed entity without registration, if specific conditions are met✓ Correct answer
- CTo allow institutional investors to purchase securities at a discount
- DTo permit unlimited payment for preorganization subscriptions
Explanation
Why B — To allow persons to agree to purchase securities of a to-be-formed entity without registration, if specific conditions are met
The exemption is designed for subscriptions to securities of entities not yet formed, with strict limits (no more than 10 subscribers, no payments until formation) (USA 402(b)(2)). The other options misrepresent or overstate its purpose.
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