This article is from the Investing Articles: Public Offerings: IPO and DPO series.
as adopted by NASAA on April 29, 1989Instructions For Use of Form U-7
(Not Part of Disclosure Document)Printing this file will provide you a complete Form U-7.
Form U-7 has been developed pursuant to the Small Business Investment Incentive Act of 1980 (now contained in Section 19 of the Securities Act of 1933) which prescribes State and Federal cooperation in furtherance of the policies expressed in that Act of a substantial reduction in costs and paperwork to diminish the burden of raising investment capital, particularly by small business, and a minimum interference with the business of capital formation.
Form U-7 is the general registration form for corporations registering under state securities laws securities that are exempt from registration with the Securities and Exchange Commission (the "SEC") under Rule 504 of Regulation D. It is designed to be used by Companies, the attorneys and accountants for which are not necessarily specialists in securities regulation.
Historically, state legislatures have generally followed two approaches to the regulation of public offerings of securities such as those made under Form U-7. Some states deal solely with the disclosure made to investors. In addition to disclosure, other states also apply substantive fairness standards to public offerings in order to assure that the terms and structure of the offering are fair to investors. In particular, those standards are designed to require the promoters of the enterprise to share its potential risks and rewards fairly with the public investors. Those standards vary from state to state and as a general rule must be complied with by a Company in order to register its securities in those states.
You may anticipate receiving comments from examiners in many of the states in which Form U-7 registration is sought. Depending upon the regulatory approach taken by the state, those comments may be limited to requests for disclosure of additional information or may also require that certain terms of the offering be modified to comply with the state's substantive fairness criteria. Failure to resolve outstanding comments can lead to denial of an application for registration.
A Company, prior to using Form U-7, may wish to contact the staff of the securities administrator of each state in which the offering is to be filed to review applicable substantive fairness standards. It may be possible to arrange a prefiling conference with the administrator's staff. The states that apply such standards may identify those standards in an appendix to these instructions or may use other means to make them available.