Friday, July 29, 2011

Kansas Adopts Domestic Issuer Exemption

A domestic issuer exemption was adopted by the Kansas Office of the Securities Commissioner, effective August 12, 2011, along with updates to federal securities statutory and rule references.

An issuer’s offer or sale of a security is exempt from registration, advertising filing and issuer-agent licensing, provided:

(1) the issuer is a Kansas-organized business;

(2) the transaction complies with the federal intrastate offering exemption at Section 3(a)(11) of the Securities Act of 1933;

(3) the total amount of cash (and other consideration) received from all securities sales in reliance on the exemption does not exceed $1 million, less the aggregate amount received for all securities sales by the issuer within the 12 months before the first offer or sale under the exemption occurs;

(4) the issuer does not accept more than $1,000 from any single purchaser unless the purchaser is an "accredited investor" as defined under Rule 501 of SEC Regulation D;

(5) a commission (or other remuneration) is not paid or given, directory or indirectly, to any person representing the issuer in the offer or sale unless the person is a Kansas-registered broker-dealer or agent;

(6) funds received from investors are deposited in a Kansas-authorized bank; funds must be used in accordance with investor instructions;

(7) the issuer notifies the Commissioner in writing of the transaction before using general solicitation or before the 25th sale of the security, whichever event occurs first, and indicates the offering is being conducted in reliance on the exemption; the notice contains the name and address of the issuer, the persons representing the issuer in the offer or sale, and the bank where the funds will be deposited;

(8) the issuer is not an "investment company" as defined in Section 3 of the Investment Company Act of 1940 and subject to reporting requirements under Section 13(d) or 13(e) of the Securities Exchange Act of 1934, either before or as a result of the offering; and

(9) the issuer informs purchasers that the securities were not registered under the Kansas Uniform Securities and, therefore, may not be resold unless they are registered or qualify for an available Kansas exemption.

NOTES: The exemption may not be used in conjunction with any other exemption under the Kansas regulations except for offers and sales to controlling persons of the issuer. The exemption is not available if the issuer is subject to one of the specified "bad boy" disqualification provisions in the accredited investor exemption rule.

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