A Comprehensive Analysis of Section 5

by Laura Anthony, Esq. on December 29, 2009 in Securities Attorneys

Section 5 of the Securities Act of 1933, as amended, contains the basic registration requirements for all offerings and rules of securities. Section 5(a) provides that “unless a registration statement is in effect as to a security, it shall be unlawful for any person, directly or indirectly:

  1. …to sell such security through the use or medium of any prospectus or otherwise; or
  2. …to transmit through the mails or in interstate commerce any such security for the purpose of sale or for delivery after sale”

Section 5(b) provides that “it shall be unlawful for any person directly or indirectly:

  1. …to transmit through the mails or in interstate commerce, any prospectus relating to a security with respect to which a registration has been filed…., unless such prospectus meets the requirements of Section 10; or
  2. …to transmit through the mails or in interstate commerce any such security for the purpose of sale or for delivery after sale, unless accompanied or preceded by a prospectus that meets the requirements of subsection (a) of Section 10”

Section 5(c) provides that “it shall be unlawful for any person, directly or indirectly, … to offer to sell or to offer to buy through the use or medium of any prospectus or otherwise any security, unless a registration statement has been filed as to such security…”
In order to understand just what Section 5 covers, one must look to the definitions contained in

Section 2. Section 2 defines a “sale” to include “every contract of sale or disposition of a security, or an interest in a security, for value.” An “offer to sell” and “offer for sale” are defined to include “every attempt to offer or dispose of, or solicitation of an offer to buy, a security or an interest in a security, for value.” Finally, a “security” is defined to include, among other items, any “note, stock, bond, debenture or evidence of indebtedness; any investment contract (including real estate for investment); any security future, put, call, straddle or option on a security; any fractional undivided interest in oil, gas or other mineral rights; any certificate of deposit; and any group or index of securities.”

Literally read, Section 5 of the Securities Act applies to every sale of every security by every person, with a security including almost anything. Literally read, Section 5 requires a registration statement to be filed before any offer to sell a security could be made. Obviously, the business world could not function within such strict confines and accordingly congress enacted Sections 3 and 4 of the Securities Act to provide exemptions to the strict and all encompassing confines of Section 5.

However, the business world does have to operate within and understand that Section 5 is all encompassing and that only if a transaction falls within a specifically enumerated exemption in Sections 3 or 4 or the rules and regulations of the SEC, can the requirements of Section 5 be avoided.

Accordingly, prior to entering into business discussions which could be interpreted as falling under Section 5 of the Securities Act, it is important to consult with and retain the services of experienced securities counsel.

Securities attorney Laura Anthony provides expert legal advice and ongoing corporate counsel to small public Companies as well as private Companies seeking to go public on the Over the Counter Bulletin Board Exchange (OTCBB). Ms. Anthony counsels private and small public Companies nationwide regarding reverse mergers, due diligence on public shells, corporate transactions and all aspects of securities law.

Ms. Anthony is the Founding Partner of Legal & Compliance, LLC, a national corporate, securities and civil litigation law firm based in West Palm Beach, Florida. The firm’s corporate and securities attorneys provide technical legal services to small and mid-size private and public (OTCBB) Companies, entrepreneurs, and business professionals nationwide. Contact us today for a FREE consultation!


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