Chapter 1: Regulations of Firms and Individuals - F. Sale, Offer to Sell, and Offer to Purchase

Question 1

Sale

Answer 1

A “sale” of a security includes every contract of sale, contract to sell, or disposition of, a security or interest in a security for value. The actual ownership changes when the securities and the money change hands. For exam purposes you need to know that the sale exists when there is a contract, so the term “contract for sale” constitutes a sale.

Question 2

Offer to sell

Answer 2

As defined by the Securities Act of 1933 act and the Uniform Securities Act, the term offer (offer for sale) includes every attempt or offer to dispose of, or solicitation of an offer to buy, a security or interest in a security, for value. An offer to sell a security cannot be made until the security has been properly registered unless an exemption is available.

The following are also included in the definition of both a sale and offer to sell:

• Any security given as a bonus in conjunction with the purchase of a security;
• The sale or offer of a right, warrant, or convertible security (note that these are all considered offers of the underlying security); and
• A gift of assessable stock (assessable means that future money is needed to maintain ownership of the stock in the form of an assessment charged to the stockholders).

Question 3

Offer to purchase

Answer 3

The definition of an “offer to purchase” includes an attempt or offer to obtain, or solicitation of an offer to sell, a security or interest in a security for value.

Question 4

Exclusions from a sale or offer to sell

Answer 4

The following are excluded from the definitions of a sale or offer to sell:

• Stock dividends paid to shareholders;
• Security interests of borrowers pledged as collateral for loans;
• Gifts of nonassessable securities; and
• Exchanges of securities caused by corporate reorganizations, mergers, consolidations, or bankruptcies.