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104 Cards in this Set
- Front
- Back
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How is a sole proprietorship treated?
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Unlimited liability
Flow through taxes |
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How is a GP treated?
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Unlimited liability
Flow through taxes |
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How is a LLC treated?
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Limited liability
Flow through taxes |
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How is an S-Corp treated?
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Limited liability
Flow through taxes |
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How is a C-Corp treated?
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Limited
Double taxation Corporate and then personally taxed distributions |
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What is a REIT?
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Real Estate Investment Trust
Must have 95% of gross income derived from real estate investments Of that 75% must be solely from real estate related activities Organized as trust At least 90% of income is distributed Dividends taxed as ordinary income Must be at least 100 separate shareholders and 5 of few people may not own more than 50% of CS during last half of taxable year |
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What is FFO?
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Funds From Operations
Determined by: NI + D/A - gains from sales |
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What are the different types of investors?
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Retail
Institutional QIB (100m minimum) Hedge Funds PE Firms |
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How does FINRA classify an Institutional Investor?
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Financial Institutions, RIAs, Pension funds and any other entity with total assets of at least 50 million
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What are the different types of financing available?
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Public
-Offering may be large pool of potential investors (retail and institutional) -Disadvantages include time and cost Private -Faster less expensive -Offering is limited and only to certain people |
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What are the different types of financing transactions?
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IPO
-Primary vs. secondary offering Follow-on PIPE -Existing public company conducts private placement followed by a sale by institutional investors in the secondary market -Company may be limited in the manner in which to raise capital -Once announced issuer's common stock usually declines |
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What is a piggyback registration right?
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Permit investor to register and sell when issuer conducts a public offering
Large investors may negotiate to have this since they will be able to sell restricted securities without needing to apply with volume limitations of Rule 144 |
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What are demand registration rights?
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Obligate issuer to file registration statement covering potential sale under certain conditions
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What did the Securities Act of 1933 do?
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Requires securities to be:
Registered Exempt from registration Or sold under exemption Scope: Provide full and fair disclosure SEC no-approval clause Registration does not equate to investment merit |
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What is the Trust Indenture act of 1939?
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Regulates corporate debt offerings
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What is the full registration timeline for an IPO?
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Pre-registration period
-No communication with public except at least 30 days prior to filing and cant mention the offering -File Registration Statement - begin 20 day cooling off period Issuer may be filing S1 or F1 Any amendment triggers 20 day period No sales or money accepted Issuer distributes Preliminary Prospectus - Red Herring - to gauge interest and and omits final price and effective date |
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What are Blue Sky provisions?
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Registration of B/Ds, RRs and securities at the state level
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What is the full registration time line?
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Request for an accelerated effecitve date
Indications of interest confirmed at offering price Bring down due diligence Final prospectus must be delivered to all purchasers |
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What are the after market prospectus delivery rules?
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25 days if exchange listed IPO including Nasdaq
40 days if non listed registered secondary 90 days if non listed IPO No requirement for an exchange listed secondary |
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What is a Lock Up agreement?
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Dictates amount of time that pre-IPO holders must wait to sell securities after IPO is trading in market
May provide comfort level for investors who are concerned holders might dump |
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What are the registration rules for WKSI's?
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F-3 or S-3 eligible for primary offerings
-Must have 75m in public float and not failed to pay dividend or bond payments in past 3 years Within 60 days of determining eligibility, issuer must have either -700m in common equity or -1bn in aggregate debt issuances in prior three years May not be an ineligible issuer Majority owned sub of WKSI may also qualify |
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What are the rules OTHER existing users?
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Seasoned Issuers can use Form F-3 or S-3
Unseasoned issuers -Reporting company but ineligible for Form F-3 or S-3 |
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What is an ineligible user?
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Blank check or shell company
Issuer offering penny stock LP not offering its securities on a firm commitment basis Issuer who has filed for bankruptcy Issuer who was convicted of a felony or misdemeanor involving securities law violations in past three years Issuer who is not current with required SEC reports |
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How long do shelf registrations last?
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Three years provided offering will begin immediately and issuer is eligible to file Form F-3 or S-3
-WKSI is permitted to file immediately effective Shelf S-3 ASR -Issuer may omit certain unknown info such as: Amount of securities sold Offer price Whether its primary or secondary offering Description of securities -Seasoned issuer may use shelf but will be subject to SEC staff review -Two year period for other eligible users |
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What is an at the market offering?
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Offering where fixed number of shares at a fixed price is offered directly into secondary market through designated BD at prevailing market prices
Issuers may use shelf to initiate Only issuers registering under F or S-3 can engage Allows issuer to act quickly and have more flexibility Can benefit from stock rise |
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What is the process a WKSI must adhere to under shelf registration? Including the use of FWP.
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Issuer files an S-3 registration form for a specified dollar amount and type of securities that it plans on offering
Each time issuer offers it will file both prelim and then final prospectus supplement with the SEC for securities issued If company issues a press release announcing offering or term sheets describing offering - either doc would be defined as FWP |
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Can other issues use FWP?
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Season issuers use FWP after filing date
Unseasoned and non-reporting issuers may use FWP after filing date but FWP must accompnay statutory prospectus Ineligible issuers not permitted to use FWP Term sheet is frequently used FWP |
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What does a term sheef have?
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Summary of specific securities being offered
Issuer may use one for each offering it has filed with the SEC If used by or on behalf of WKSi must have legend to indicate how prospectus can be obtianed |
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What is considered written communication?
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Written, printed, broadcast and graphic communication
-Graphic refers to electro media |
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What is oral communication?
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Live and real time
-If live and retransmitted using graphic communication to live audience, its still oral |
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When is a research report ocnsidered a prospectus?
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If it inlcudes info regarding new issue
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What else is not permitted in terms of offering communication?
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Advertising related to new issues
Internal comm. distributed to customers |
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What is a Gun Jumping provision?
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Refers to allowable communication during the cooling off period that relates to a new issue
Communication not deemd to be prospectus includes simple ad (tombstone) No orders may be accepted until effective date |
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What does a tombstone ad have?
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Name of issuer
Selling shareholders Security and amount being offered Date of sale Brief description Identity of underwriter Contact information for org sending material Information on market where issuer is or will be listed Statement indicated securities are in registration but not yet effective |
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What are safe harbors?
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Allow communication to be released by or on behalf of issuer
Factual Business Information -Business and financial developments -Products and services -Dividend notices -Information in SEC filed reports Forward Looking Information -Earnings forecasts -Plans relating to future products and services -Statements about future economic performance -Information in SEC-filed reports Reporting issuers are permitted to use both Non reporting issuers may use factual business info but not forward statements |
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What is a road show?
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Meeting held by bankers and issuer relating to a securities offering and includes prospective clients and brokers
Live real time road show is oral not written Electronic road show allows for larger audience |
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What about electronic road shows?
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When recorded falls under written communication
Considered FWP Non reporting issuer must file electronic road show with SEC unless its a bona fide electronic road show made available without restrictions Electronic road shows for follow on equity offerings and non convertible debt do not require SEC filing |
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What is a bona fide electronic road show?
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Consists of an electronic road show transmitted by graphic means that contains presentation by one or more officers of an issuer or other person involving issuers management
Used for IPOs |
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What does Rule 137 say?
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BD may publish research when not acting as underwriter
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What does Rule 138 say?
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BD may publsih research when acting as underwriter for another clas of security
-If issuer's common stock is under registration, a participant may comment on the issuer's non convertible bond's or vice versa |
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What does Rule 139 say?
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If issuer is reporing WKSI, BD may publish research reports when acting as an underwriter for the underlying security
-Provided that the underwriter is continuing regular coverage |
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What is regulation SK?
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Establishes guidelines for the format used when presenting projections used in non financial statements contained in registration statements
-Issuer is not limited to a specific time frame but may not be misleading -Objective is to increase investor understanding SEC permits but does not require outside review -When using outside reviewr disclosures are required -Reviewer must be expert Reg also requires disclosures in other SEC filings such as description of the types of securities being offered, use of proceeds, comp of management and detailed info in form 8-k, 10-k and proxy -Example is disclosure in a proxy statement of name of director who attends less than 75 percen of meetings |
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How do you treat the reporting of non gap measures?
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Disclosure of what they are, reasons for not using GAAP measure and what it can be compared to
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What is regulation SX?
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Governs requirement for financial statements under the 33 and 34 acts
Rules for the form in contact are: -Pro forma financial info -Interim financial statements -Qualifications and reports of accountants -Consolidated and combined financials -Employee stock purchase, savings and similar plans Attestation report must be prepared by independent accountant ex is stale financial when companies use outdated financial (135 days) |
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What is a false registration statement?
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Parties may be sued for untrue statements and material omissions from a registration statement
Parties include: Every person who signed the statement Every director or partner of the issuer at the time of the filing Every accountant, engineer or appraiser named as having prepared or certified any part of the registration statement Every underwriter |
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What is section 11 defense?
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Parties that may be sued other than the issuer are exempt from liability if they can prove they had no knowledge of the fraud
Must also properly notify commission Would include accountants or anyone else who refused to sign the document used to prepare the statement |
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What is a civil liability for sales persons?
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Any person who offers or sells a security in violation of the registration provisions of the 1933 without reasonable care regarding untrue statements
Liable for investment amount , reasonable amount of interest less the amount of income received from the investment |
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What is Reg FD?
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Fair Disclosure
To protect retail investors issuers must provide information to everyone at the same time Means public must have access to Ks and Qs If disclosure is intentional it must file immediately If disclosure unintentional it has 24 hours or before opening of next trading day |
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What is SOX?
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Rules to make senior management more accountable for company internal management
No personal loans to officers and directors Section 404 requires SEC reporting companies and external auditor to test internal controls Each member of audit committee must be a member on BOD of issuer and be independent |
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What does SK require that you disclose?
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Whether or not at least one audit committee financial expert is on audit t committee or..
NYSE and NASDAQ require you to have at least one person on audit committee who meets definition of financial expert |
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What securities are exempt from registration but not from antifraud?
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US Gov. Agency securities
Municipal Securities Securities issued by banks Securities issued by nonprofit organizations Short term corporate debt, max maturity of 270 days |
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What is rule 147?
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Intrastrate Exemption
-Bulk of issuesrs activities must be in one state 80 percent of assets, revenues and proceeds from one state and 100 percent of investors state residents Eligible purchasers include preexisting resident corporations, partnerships and trusts |
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What is Regulation A?
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Small Issues
Offering limited to 5mm over 12 months -No more than 1.5 on behalf of selling shareholders Offering circular must be filed with SEC -Must accompany any sales literature Test the waters -Issuer may provide factual info prior to SEC filing to see if investors are interested |
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What is a placement agent?
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IB firm that acts as agent by agreeing to find institutional investors to purchase the securities being offered
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What is a placement by agent agreement?
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Terms and conditions between the issuer and placement agent
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What is an engagement letter?
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Signed by issuer to engage the placement agent
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What is a teaser?
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Executive summary of the private placement document
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What are the terms associated with private placements?
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Term Seet
-Info regarding securities offered Confidentiality Agreement -Signed by investor agreeing not to disclose confidentiality Subscription agreement -Sales contract for securities offered in private placement |
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What does the Section 4(2) exemption do?
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Provide exemption from registration for transactions by an issuer that do not involve a public offering
-Referred to as private offering exemption and allows for no form of solicitation -To qualify the purchasers must have knowledge and experience in finance and business to understand and evaluate the risks and merits of investment Investors must have access to same information normally provided in prospectus and must agree not to resell or distribute securities publicly |
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What does the section 4(6) exemption do?
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Provide exemption for transactions if the following are met...
Amount of offering does not exceed 5mm No advertising or public solicitation may be used to offer securities and offering may be sold only be accredited investors *Reg D allows participation of a few non accredited |
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What are the Reg D private placement exemptions?
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504 for offerings not exceeding 1mm
505 for offerings not exceeding 5mm 506 for unlimited dollar amount and... Sale of securities directly to accreditedinvstors which include officers, directors or individuals who have met financial test: Also screened on Net Worth or Annual income |
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What does the purchase letter do?
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Establish that purchase is for investment purpose
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What is a purchaser representative?
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Evaluate risk and merits for non accredited investor
May or may not be officer, director or 10 percent owner Potential disclosure document |
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When are disclosures used?
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with accredited investors never with non-accredited its required for all
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What does rule 144A do?
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Permits sale of restricted securities to QIBs
Securities facilitated by portal |
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What does registration S do?
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Provide registration exemption to US company issuing securities outside of the U.S provided that
-No offer is directed to a U.S. resident and the transaction is effected through an overseas securities market Such securities may be resold to a U.S resident after -40 days of debt -One year for equities |
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What is FINRA Rule 5122?
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Member firm effecting a private placement to raise capital for itself
Firm is required to file with FINRA a term sheet that includes conflict of interest disclosures (Institutional investors and QIBs exempt) Exemptions also provided for certain offerings such as exempt securities and exempt transactions and a member firm's offerings |
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What does Rule 144 do?
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Permit the sale of restricted and control stock
-Restricted stock (unregistered) -Control stock (Affiliated) registered stock owned by officers, directors or greater than 10% shareholders |
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What about rule 144 and selling restricted stock?
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SEC must be notified at time the sell order is placed
Then you have 90 days to sell specified security Max that can be sold: Greater of out shares or AWTV Exception to notify SEC if selling under 5,000 or 50,000 shares |
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What is the chain of command when issuing to the primary market?
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Issuer
Underwriting manager Syndicate members Selling group Customers |
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What are the four different types of underwriting?
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Firm commitment
-Syndicate must absorb losses on unsold Best Effords -Unsold shares are returned to issuer Contingent underwritings -Escrow account until contingency is met (all or none / mini - maxi) Stand-by -Syndicate obligated to purchase shares left after a rights offering |
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What is a market out clause?
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Releases underwriter from liability due to unforeseen circumstances
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What is a green shoe clause?
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Allows underwriter to purchase up to 15% more shares than were originally offered
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What about syndicates?
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Final settlement of syndicate must occur within 90 days of syndicate closing
Syndicate manager must promptly notify FINRA of any anticipated delay in the closing |
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What is a Jump Ball?
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Procss sets aside shares for institutional clients and allows all members to compete for orders
profit is allocated based on each members sales |
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What is Free retention?
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Amount that an underwriter is allotted for placement to its own clientrs
Sales to firm retail clients often filled from this amount |
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What are the important considerations with institutional clients?
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Customers ability to independently evaluate the investment risk
Extend to which the customer is exercising that ability |
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What about soliciting?
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Research analysts are prohibited from soliciting IB business
Cant pitch, communicate with companies for business or participate in due diligence |
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What CAN a research analyst do?
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Discuss IB services transactions with a client or a potential client
Discuss IB service with internal personnel Communication can be to educate clients and internal personnel about transaction - IB and co cant be present |
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What about research reporting?
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IB clients cant be subject of research during quite period
For an IPO -40 cal days from offering for manager or co-manager -25 calendar days from the offering for all other participants For a secondary offering -10 calendar days for manager or co-manager -Does not apply to reports distributed under rule 139 regarding actively traded securities as defined by regulation M No reports 15 days before or after lock-up (booster shot) All apply to unregistered offerings |
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What are the research exceptions?
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Small gather of less than 15
Exemptions for news and events |
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What about terminating research coverage?
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Final report must be made available using same means as normally used
Report must be comparable in detail to prior research reports and must include a final recommendation or rating If it is impractical to provide final recommendation or rating, rationale for the decision to terminate coverage must be provided |
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What are FINRA's underwriting rules?
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Securities being registered must be done no later than one biz day following SEC filing
if not filed with any regulatory authority filing must be done at least 15 days prior to anticipated offering Documents to be filled: Copies of registration Underwriting agreement LOI Copies of OM Estimate of max offering price and underwriting discounts Finders fee and other comp Statement detailing firm comp during 180 day period |
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What securities are exempt from FINRA underwriting rules?
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Investment grade securities
Shelf registration offerings Exchange offerings of NYSE, AMEX or Nasdaq Global Foreign private issuers eligible to use SEC form F-10 |
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What offerings are exempt from corporate financing rule?
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Reg D
Mutual funds Municipals TOs M&A with no securities |
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What does FINRA Corporate Finance Review do?
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Evaluate fairness of underwriter's compensation
Managing underwriter responsible for filing underwriting agreement Factors taken into consideration -Offering proceeds -Amount of risk assumed by underwriters -Type of securities being offered |
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How does FINRA define compensation?
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Underwriting spread of commission
Fees Securities Convertible comp |
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What are FINRA prohibited expenses?
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Reimbursements
Commissions paid by an issuer to member firm Unacceptable expenses exceeding 3% of offering proceeds |
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What are FINRA underwriting rules?
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You cant:
Sell securities acquired in conenction with offering for 6 months Options can be exercised at anytime but securities received on exercise are restricted for rest of period |
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What are FINRA's rules with syndicates and selling groups?
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Member may not joint syndicate with nonmember
Suspended members must be treated as members Member or selling group is subsequently suspended would be allowed to purchase securities but only at the full and public offering price Selling concessions and discounts for public offerings may only be granted to broker dealers engaged in IB biz |
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What are conflicts of interest with public offerings?
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Conducting offering of own securities
FINRA requires: Disclosure of any conflict of interest and Qualified Independent Underwriter to participate in prep of offering documents *QIU must have served as manager or co manager in at least three public offerings of similar size and type during the three yuar peroid preceding filing |
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What is an affiliate?
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Entity that controls member with 10% or more of ownership
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What does Reg M do?
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Limits activities that could manipulate price of a security during the restricted period
Restricted period begins 5 days before pricing and ends when distro is done |
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What is the rule with Regulation M and IPO allocations?
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Cant manipulate price prior to distribution
Illegal to dump repurchased shares into trading at end to manipulate price up |
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What is passive market making referenced in Reg M?
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Market where at least one indi market maker
-May not bid higher than highest indi bid -If indi MM lowers bid then passive market maker may maintain bid |
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What is Reg M's policy on stabalizing bids?
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Permits syndicate to purchase shares in the secondary market to prevent price decline
-Only form of SEC allowed price manipulation -Must not exceed public offering price -Only one syndicate member may stabilize -Notification to principal marke twhere bid is to be entered -No limit on how long stabilizer can be open |
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What is a penalty bid?
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arrangement that permits the managing underwriter to reclaim selling concession from syndicate
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What is a syndicate covering transaction?
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Syndicate short positions may arise from over allotments in which syndicate members sell more than the number of shares offered
Instead of having losses in a rising market the MU may exercise green shoe |
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What about short sales and reg m?
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If shor effected within five days before pricing, shares may not be purhcased
Designed to minimize shorting beneift from impending issuance UNLESS bona fide and person has no idea |
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What is the equity IPO rule?
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keeps members from selling IPOs to accounts in which restricted person has beneficial interest
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What are the NYSE exchange listing requirements?
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400 US roundlot shareholders
1.1mm out shares Total market value of 140mm Stock price of at least 4 at trading time At least one of several alternative tests Majority of BOD must be independent |
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What are the nasdaq requirements?
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4 dollar min bid price
3 or 4 market makers Subject to corporate governance or Based on earnings, revenue, cash flow, market cap etc. |
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What about the NYSE?
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Centralized, physical
Auction market One specialist per security NYSE Hybrid Trading System Trading participants: Floor brokers two dollar brokers Specialists |
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What about the OTC market?
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Nonphysical phone and comp network
Negotiated Unlimited number of market makers Pink Sheets OTCBB NASDAQ issues |
