Rule 506 options have been increasingly popular for private placement needs because they don’t require state regulation. The NSMIA (National Securities Markets Improvement Act), established in 1996, states that any security provided under the Regulation D of Rule 506 qualifies as a covered security. Therefore, any securities sold under this rule are exempt from state-level registration requirements, or blue sky laws.
Why States Have a Say
Even though the securities laws are governed by the federal government, each state can choose their security laws to supplement any federal security laws and regulate the offerings and sale of securities. While each state’s laws are similar, there are particular differences and requirements that vary. Therefore, it’s best if you understand all the fees and how to file.
The Various Rules
Every state, other than New York, must file within 15 days. New York must pre-file. The fees associated with each state vary widely, ranging from $50 (in Idaho) all the way to $600 in Vermont. Some states have a variety of other rules in place, such as late filing fees, percentages of the tender price of the security, and much more.
Even if you utilize Rule 506, most states must still have blue sky filings and pay the fees associated with them so that they are considered legal. Again, most states try to make it as easy as possible. You must send in a copy of your Form D and the fee.
At the end of 2014, the NASAA (North American Securities Administrator Association), launched the EFD system (Electronic Filing Depository), which allows you to submit any applicable fees and forms to a variety of states all at once. The public is also allowed to view the blue sky filings made by anyone that participates in the program. Visit Colonial Stock Transfer for more information.
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