Registering Securities and Exemptions
Registering Securities and Exemptions
Definition of a Security
Most people understand that stocks and bonds are securities and know that special laws apply to securities, but many do not realize that New Mexico law defines “securities” much more broadly than just stocks or bonds. A security also includes items such as promissory notes, limited partnership interest, LLC interests, and oil and gas partnerships.
In fact, a security can be any transaction in which one person gives money with the agreement that the money will be returned with a profit. Such arrangements are deemed “investment contracts” and are also defined as securities in Section 58-13C-102(DD) of the New Mexico Uniform Securities Act.
The Securities Division strongly recommends you consult with a member of our staff or an experienced securities attorney before relying on any representations that your capital-raising efforts will not involve the offer or sale of “securities.”
Registration by Coordination
Registration by coordination applies to larger, national or regional interstate securities offerings that are required to register at both the federal and state levels. The registrations are coordinated by simultaneous filings with the Securities and Exchange Commission (SEC), New Mexico Securities Division, and other state securities agencies. Federal and state registrations can become effective simultaneously if there are no outstanding deficiencies based on the Securities Division requirements at the time the SEC declares a registration effective.
Statutes and Regulations
- NMSA 58-13C-303– Securities Registration by Coordination specifies the information, documents, and conditions for this type of registration.
- NMSA 58-13C-305– Securities Registration Filings provides authority for the filing, fee, and other requirements for securities registrations, including provisions for effective periods, reports, and amendments that are specified further by regulation 12.11.8 NMAC.
- NMSA 58-13C-306– Denial, Suspension, and Revocation of Securities Registration provides grounds and procedures for denial, suspension, and revocation of securities registrations.
- 12.11.8.10 NMAC specifies additional requirements for registration by coordination.
- 12.11.8.8 requires a registration fee of 0.10% (one-tenth of one percent) of the aggregate amount of securities to be offered in New Mexico, with a minimum fee of $525 and a maximum fee of $2,500 for each class of shares and each year of registration
- Additional documents are specified by 12.11.8.10 NMAC and by NMSA 58-13C-303
- Each prospectus for a securities offering filed for Registration by Coordination under NMSA 58-13C-303, and amendments thereto, shall contain the information required in part I of the registration statement filed by the issuer under the Securities Act of 1933, unless the commissioner modifies or waives the requirements pursuant to NMSA 58-13C-307.
- 12.11.8.12 NMAC specifies the acceptable forms, content, and delivery requirements for the prospectus in a registered securities offering as follows:
- The prospectus for an offering registered by coordination shall be delivered as required under Securities Exchange Commission (SEC) rules.
- 12.11.9 NMAC list several statements of policy adopted by the North American Securities Administrators Association Inc. (NASAA) that may be applicable for registration of securities, depending upon the types of securities or business operations of issuers. Demonstration of compliance by issuers in registration statements is required for relevant policies or portions of policies, unless exceptions are allowed by the commissioner for good cause shown.
Registration by Qualification
Securities offerings that are exempt from federal registration with the Securities and Exchange Commission (SEC) under the Securities Act of 1933, but not exempt from registration in New Mexico or other states, are required to register by qualification. The relevant statutes and regulations under the New Mexico Uniform Securities Act (NMSA) for registration by qualification in New Mexico are as follows.
Statutes and Regulations
- NMSA 58-13C-304 – Securities Registration by Qualification specifies the information, documents, and conditions for this type of registration.
- NMSA 58-13C-305 – Securities Registration Filings provides authority for the filing, fee, and other requirements for securities registrations, including provisions for effective periods, reports, and amendments that are specified further by regulation 12.11.8 NMAC.
- NMSA 58-13C-306 – Denial, Suspension, and Revocation of Securities Registration provides grounds and procedures for denial, suspension, and revocation of securities registrations.
- 12.11.8.11 NMAC – Specifies the requirements for application forms, offering documents, fees, amendments, extensions of registration, and abandoned applications, and reports of sales.
- A registration fee of 0.10% (one-tenth of one percent) of the aggregate amount of securities to be offered in New Mexico, with a minimum fee of $525 and a maximum fee of $2,500 for each year of registration.
SCOR
Purpose
Small Company Offering Registration (SCOR) is a uniform program among states for the registration by qualification of small issuers that limit their offerings in size or location under federal exemptions referenced by NASAA Statement of Policy, under the Securities Act of 1933. An extensive manual is available at the link below to the North American Securities Administrators Association (NASAA) website. The SCOR Manual (Form U-7) provides detailed instructions and guidance for preparing the disclosures on the SCOR form.
Exempt Securities
Exempt securities are viewed as being inherently safer, principally either due to the nature of the issuer or the existence of additional regulation. They include securities issued or guaranteed by governmental entities, banks, insurance companies, and public utility companies, as well as securities listed on some securities exchanges or certain securities issued by not-for-profit entities or cooperative associations.
The statute can be found at this link.
The Regulations can be found at this link.
Caution
It is essential to note that no exemption from registration provides an exemption from the fraud provisions provided for in NMSA58-13C-501. Selling securities is not like selling other products where the rule is simply buyer beware. There is a duty on the part of all persons selling securities not to make misrepresentations and not to omit facts that are necessary to understand the disclosures given (what many might call half-truths).
Exempt Transactions
Exempt transactions are viewed as being safer because they are limited in scope, made only to a limited number of people known to the issuer or to a limited class of people either meeting certain income and/or net worth criteria, or made to people already well informed about the issuer, or specified transactions through a registered broker dealer.
The statutes can be found at this link.
The regulations can be found at this link.
Caution
It is essential to note that no exemption from registration provides an exemption from the fraud provisions provided for in NMSA58-13C-501. Selling securities is not like selling other products where the rule is simply buyer beware. There is a duty on the part of all persons selling securities not to make misrepresentations and not to omit facts that are necessary to understand the disclosures given (what many might call half-truths).
Common Exemptions
Accredited Investor
Under this exemption, sales of securities may be made exclusively to persons who are accredited investors as defined in Rule 501, Regulation D of the federal 1933 Securities Act. A general announcement of a limited nature may be made of the proposed offering by any means, including a brief description of the business in 25 words or less. The issuer may also deliver information in addition to the general announcement if delivered through an electronic database that is restricted to persons who have been prequalified as accredited investors.
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Citation:
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Filing Requirement:
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The following items must be received by the Director within 15 days after the first sale in this state: Uniform Notice of Transaction for Accredited Investors, Form U-2 and a copy of the general announcement.
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Filing Fee:
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$350 |
Employee Benefits Plan
This exemption allows for the sale of the issuer’s securities to participants in employee benefit plans established by the issuer or its affiliates. In addition to employees, the exemption covers sales to other individuals. Please review the New Mexico Statute cited below for specific guidelines.
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Citation:
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Filing Requirement:
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Exemption is self-executing, no filing is required.
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Filing Fee:
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None
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Existing Shareholders
This exemption applies to an offer to the existing security holders of the issuer, and includes holders of convertible securities, options or warrants provided no commissions are paid for soliciting a security holder in New Mexico.
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Citation:
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Filing Requirement:
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Exemption is self-executing, no filing is required.
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Filing Fee:
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None
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Limited Offering
This is a type of private placement; therefore no general solicitation is permitted. It allows an issuer organized as a corporation, limited partnership or limited liability company to raise an unlimited amount of capital from up to 25 investors in total (that includes within and outside of New Mexico). Securities sold under this provision cannot be readily sold or transferred. No disclosure format is specified for the offering, but the issuer must disclose all materials facts to purchasers in compliance with the anti-fraud provisions of the Securities Act. Resale of such securities is restricted and therefore the issuer must have a reasonable belief that the securities are purchased for investment purposes.
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Citation:
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Filing Requirement:
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If the issuer is formed under the laws of another state or jurisdiction, it must file a notice with the securities Division on Form 202Y. IF an issuer is formed in New Mexico, they must file with the New Mexico Securities Division a statement of purpose which outlines the directives and goals of the offering. We recommend filing a completed Form 202Y even if you a domestic New Mexico entity.
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Filing Fee:
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None
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Rule 506
Federal Covered Securities
Federal covered securities represent a special kind of exempt security. Pursuant to the Securities Act of 1933, states are preempted from requiring registration for certain securities. These include mutual funds, securities traded on the most prominent stock exchanges and private placements sold pursuant to Regulation D, Rule 506 and Regulation A offerings.
Rule 506 (b)
Securities and Exchange Commission (SEC) Regulation D, Rule 506 provides a federal exemption for private offerings without regard to the dollar amount of the offerings. Sales, other than to accredited investors as defined by Regulation D, Rule 501 of the Securities Act of 1933, are limited to no more than 35 purchasers who either alone or with their purchaser representative have the knowledge and experience to evaluate the merits and risks of the offering and no general advertising or solicitation is allowed.
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Citation:
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Filing Fee:
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Timely filing – The fee is $350 for on-time filing. Late filing – If the notice filing is late but within 10 days after the due date, the accompanying the late filing shall be $700. If the notice filing is more than 10 days after the due date, the fee accompanying the late filing shall be $1,050. EFD will calculate the fee that is due on the filing. |
Rule 506 (c)
Securities and Exchange Commission (SEC) Regulation D, Rule 506 provides a federal exemption for private offerings without regard to the dollar amount of the offerings. General advertising and solicitation is allowed in this circumstance so long as all sales are made only to Accredited Investors.
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Citation:
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Filing Fee:
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Timely filing – The fee is $350 for on-time filing. Late filing – If the notice filing is late but within 10 days after the due date, the accompanying fee for the late filing shall be $700. If the notice filing is more than 10 days after the due date, the fee accompanying the late filing shall be $1,050. EFD will calculate the fee that is due on the filing. |
Regulation A
Offerings Utilizing the new Regulation A+
Regulation A allows companies to offer and sell securities to the public, but with more limited disclosure requirements than what you would expect from publicly reporting companies. Smaller companies in earlier stages of development may be able to use this rule to raise money. An offering circular is required to be given or made accessible to each potential investor. The registration requirements pursuant to Regulation A are: The aggregate offering may not exceed $20,000,000 in any 12-month period if using Tier I; or $75,000,000 in any 12-month period if using Tier II. For Tier II users, New Mexico requires a notice filing to be made along with a fee of $350. Please see the links below for the form and the temporary order.
For Tier I users, please refer to the NASAA coordinated review protocol for those offerings. Contact the Securities Division with any questions you may have.
Sales to 10 or Fewer Purchasers
This exemption is a state level private placement exemption and no general solicitation is allowed, no commissions are paid to persons not registered in New Mexico and the purchase is being made for investment and not for resale. The issuer may not sell to more than 10 persons in New Mexico within any 12-month period. In addition, the issuer must meet one of the following two conditions:
The company does not have more than 50 beneficial owners and has not raised more than $1 million during any consecutive 12 month period, or;
The seller reasonably believes that all of the purchasers in this state are purchasing for investment.
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Citation:
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Filing Requirement:
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Completed Form 202N must be filed no less than five (5) business days before the first sale of securities in this state.
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Filing Fee:
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None
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Small Offerings by Issuers with Local Operations
This is an intrastate exemption that permits general solicitation and the total offering, including interest on installment payments does not exceed $2.5 million. There is no limit on the number of purchasers; however the following conditions apply:
- The issuer’s principal office or principal place of business or a majority of its employees or assets must be located in New Mexico.
- More than one-half of the offering proceeds must be used in New Mexico.
- An offering document must be delivered to each prospective purchaser prior to sale, disclosing such information as the Director requires.
Even though these offerings do not have to meet the substantive standards that are applied to registered offerings, resale of such securities is restricted.
An update to the rules on intrastate offering exemptions has been made; please see the link.
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Citation:
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Filing Requirement:
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Completed Form 202X must be filed no less than ten (10) business days before the first sale of securities in this state.
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Filing Fee:
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$350
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Additional Exemptions and Restrictions
58-13C-203. Additional exemptions and waivers.
A rule adopted or order issued pursuant to the New Mexico Uniform Securities Act may exempt a security, transaction, or offer; a rule pursuant to the New Mexico Uniform Securities Act may exempt a class of securities, transactions, or offers from any or all of the requirements of Sections 301 [58-13C-301 NMSA 1978] through 306 [58-13C-306 NMSA 1978] and 504 [58-13C-504 NMSA 1978] of that act; and an order pursuant to the New Mexico Uniform Securities Act may waive, in whole or in part, any or all of the conditions for an exemption or offer pursuant to Sections 201 [58-13C-201 NMSA 1978] and 202 [58-13C-202 NMSA 1978] of that act. The director may by rule require notice of filing for any exemption contained in Section 201 or 202 of the New Mexico Uniform Securities Act and may require payment of a fee not to exceed $350 for any such notice of filing, except that no fee shall be required for filing a notice of exemption pursuant to Subsection Y of Section 202 of that act.
History: Laws 2009, ch. 82, § 203.
58-13C-204. Denial, suspension, revocation, condition or limitation of exemptions.
A. Except with respect to a federal covered security or a transaction involving a federal covered security, an order pursuant to the New Mexico Uniform Securities Act may deny, suspend application of, condition, limit or revoke an exemption created pursuant to Paragraph (4) of Subsection C of Section 201 [58-13C-201 NMSA 1978] of that act, Subsection G or H of Section 201 of that act or Section 202 [58-13C-202 NMSA 1978] of that act or an exemption or waiver created pursuant to Section 203 [58-13C-203 NMSA 1978] of that act with respect to a specific security, transaction or offer. An order pursuant to this section may be issued only pursuant to the procedures set forth in Subsection D of Section 306 [58-13C-306 NMSA 1978] or Section 604 [58-13C-604 NMSA 1978] of the New Mexico Uniform Securities Act and only prospectively.
B. A person does not violate Section 301 [58-13C-301 NMSA 1978], 303 [58-13C-303 NMSA 1978] through 306 [58-13C-306 NMSA 1978], 504 [58-13C-504 NMSA 1978] or 510 [58-13C-510 NMSA 1978] of the New Mexico Uniform Securities Act by an offer to sell, offer to purchase, sale or purchase effected after the entry of an order issued pursuant to this section if the person did not know, and in the exercise of reasonable care could not have known, of the order.
History: Laws 2009, ch. 82, § 204.
Burden of Proof
Provides that any person claiming an exemption from registration or an exception, preemption, or exclusion from provisions of the New Mexico Uniform Securities Act has the burden to prove the applicability of the claim. This applies whether or not a filing is required for an exemption or federal covered security. For the self-executing exemptions or preemptions not requiring a notice filing, persons claiming exemption or preemption are expected to have sufficient records to demonstrate compliance with requirements or conditions of statutes or regulations, if challenged by anyone. To see the specific statute please click NMSA 58-13C-503.
Consequences of Noncompliance
Failure to comply with registration requirements or an eligible exemption can have many consequences for an issuer.
First of all, issuer is liable for failure to comply pursuant to NMSA 58-13C-509.
Additionally, failure to comply with securities laws in an offering may hamper any future capital formation attempts because the past error has to be corrected, usually through a rescission offer, and/or because of the requirement to disclose the liability arising from the original noncompliance.
Failure to comply is illegal and is subject to an action by the Securities Director and other state and/or federal authorities. NMSA 58-13C-508, NMSA 58-13C-603, NMSA 58-13C-604.
Forms and Fees
| Registrations and Exemptions | ||
| Form U-1 | Uniform Application to Register Securities for registrations by qualification or coordination | 1/10 of 1% of aggregated amount of securities to be offered in NM. $525 minimum $2,500 maximum. |
| Form U-2 | Uniform Consent to Service of Process | None |
| Form U-2A | Uniform Corporate Resolution | None |
| Form 202N | Sales to Ten or Fewer Purchasers | None |
| Form 202X | Small Offerings by Issuers with Local Operations | $350 |
| Form 202Y | Limited Offering | None |
| Accredited Investor | Accredited Investor Notice of Exemption | $350 |
| Uniform Reg A – Tier 2 Filing Form | Filing for Reg A+ (tier 2) | $350 |
| Notice Filings | ||
| Contact NM Securities Division | Mutual Funds Federal Notice Filing Fee and Renewals | $525 |
| “ | Unit Investment Trust Federal Notice Filing Fee | $200 |
| “ | Amendment to change name of issuer | $50 |
New Mexico Securities Division requires issuers to file notices and payments via EFD (Electronic Filing Depository)
Please see Order Mandating Use of EFD System, and Use of Electronic Filing of Fees.
Regulation D, Rule 506 (b)
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Filing Requirement:
Filing Fee:
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Notice filings shall be made via the Electronic Funds Depository System (EFD) within 15 days after the first sale of the security in New Mexico. If you are not automatically directed to the EFD website, the information for accessing them is listed below. Here is the contact information for any filers seeking help setting up on EFD Email address: support@nasaaefd.org Support phone: 800-378-5007
Timely filing – The fee is $350 for on-time filing.
Late filing – If the notice filing is late but within 10 days after the due date, the accompanying the late filing shall be $700. If the notice filing is more than 10 days after the due date, the fee accompanying the late filing shall be $1,050. EFD will calculate the fee that is due on the filing.
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Regulation D, Rule 506 (c) |
Filing Requirement:
Filing Fee:
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Notice filings shall be made via the Electronic Funds Depository System (EFD) within 15 days after the first sale of the security in New Mexico. If you are not automatically directed to the EFD website, the information for accessing them is listed below.
Here is the contact information for any filers seeking help setting up on EFD Email address: support@nasaaefd.org Support phone: 800-378-5007
Timely filing – The fee is $350 for on-time filing.
Late filing – If the notice filing is late but within 10 days after the due date, the accompanying the late filing shall be $700. If the notice filing is more than 10 days after the due date, the fee accompanying the late filing shall be $1,050. EFD will calculate the fee that is due on the filing. |
| Miscellaneous Fees | |
| Interpretive Opinion | $300 |
| No Action Letter | $300 |
| Audit/Examination Fee | $100 per day plus actual costs of transportation and lodging where applicable. |