In the realm of securities offerings, Companies (aka issuers) sometimes offer their securities, like Common Stock, for sale to the public through licensed broker-dealers who utilize licensed agents. However, there are situations where an issuer's securities may be sold directly by the issuer itself. To do this, the issuer can submit and file Issuer-Dealer and Agent registrations to various states, as required, which exempts issuers from using a broker-dealer for their offering, streamlining compliance requirements and providing cost savings. This blog post focuses on the concept of an issuer-dealer and the associated registration requirements for issuers not utilizing a registered broker-dealer in the context of offers and sales of securities under offerings such as Regulation A and Regulation D.
Defining an Issuer Dealer
An issuer dealer can be thought of as a hybrid entity that combines the roles of an issuer and a dealer in the financial markets. To grasp this concept better, let's break down the definition of an issuer vs an issuer dealer:
1. Issuer: An issuer is an entity, typically a corporation, government, or other organization, that creates and offers securities to the public for investment. Securities could include stocks, bonds, or other financial instruments representing ownership or debt within the issuing entity.
2. Issuer Dealer: An issuer-dealer, in the context of securities offerings, refers to either an issuer located in a specific jurisdiction or an issuer that has registered its securities through a qualification process. These issuers propose to sell their securities directly to the public of that jurisdiction without utilizing the services of a registered broker-dealer. As a result, they take on the role of both the issuer and the dealer in the securities transaction. Issuer-dealers, much like broker-dealers, engage in the business of offering or selling securities that they themselves issue. However, they do so without the involvement of another registered broker-dealer as an intermediary. This means that issuer-dealers directly connect with investors, market their securities, and execute sales without relying on a separate brokerage service.
Functions of an Issuer Dealer
Selling of Securities: Issuer dealers register in states to be able to sell their own securities to investors living in states that require those filings. States require issuer dealers and their agents to be registered with them. Agents typically refer to officers or directors of the company who are making sales on behalf of the issuer to investors. By registering, issuers are able to sell securities in those states, like a broker-dealer normally would. For Reg A and Reg D offerings, this is a a much more streamlined process, compared to utilizing a broker-dealer, because it meets SEC and State regulations at a lower cost and less requirements.
Issuance of Securities: Issuers are responsible for issuing stock certificates (electronic or physical) to potential investors. Most issuers will elect to use an SEC-registered transfer agent in most cases. This process involves compliance with regulatory authorities, disclosure of essential information about the securities, and adherence to relevant securities laws that involve registering the shares in the states.
Given the intertwined roles of companies that register as issuer dealers, regulation aims to maintain transparency, protect investors, and ensure fair practices in the financial markets. State regulator agencies oversee the activities of issuer dealers and require filings, fingerprints, and disclosure to maintain their licenses in such states on a yearly basis.
When functioning as an issuer, these entities are obligated to disclose certain information with the states to be registered as an Issuer Dealer in those states. This includes financial statements, fingerprints, applications, and confirmations.
Preemption under Section 18 of the Securities Act exempts covered securities from state review of Reg A and Reg D offerings, granting federal authority precedence over state authority on matters of interstate commerce. This means that states cannot require registration or qualification of covered securities. However, the exemption does not negate the registration requirements for intermediaries or the requirement for issuers to register themselves as issuer dealers if they choose not to engage a broker.
Registration as an issuer-dealer involves filing an application with the relevant regulatory department and paying an initial registration fee. This registration must be renewed annually, and corrections should be submitted for any previously filed inaccurate or incomplete documents. Withdrawal of a registration becomes effective 30 days after the application to withdraw is received.
It is important to note that issuer-dealer registration requirements may vary from jurisdiction to jurisdiction, and issuers should ensure compliance with the specific regulations and guidelines applicable to the jurisdiction in which they operate as an issuer-dealer.
Seeking guidance from state compliance consultants can simplify the issuer-dealer registration process, ensuring compliance with requirements and facilitating seamless blue sky state filings.
Getting Started
The Issuer-Dealer and registration process is a critical process within the realm of financial markets, encompassing registering with the states so that issuers that are selling shares of their stocks or securities can be eligible to make sales in various states.
Should companies choose to navigate the issuer-dealer and agent registration requirements themselves, they can benefit from greater control and save time and costs. By registering as an issuer-dealer, companies can streamline the compliance process and have a clearer overview of their progress.
To ensure a smooth issuer-dealer registration process, it is recommended to consult with expert state compliance consultants who can guide companies through the complexities of blue sky state filings.
IssuerDealer.com can make the filing process seem easy for issuers that use its online compliance platform and full-service Issuer Dealer Registration services.