Issuer

At a State E compliance briefing, Ilbury Securities reviews four descriptions. Wrenbury State Bank executes securities trades for its own depositors. Ilona Prescott is an individual who effects trades for customers of Ilbury Securities. Kestrel Foods Inc. sells only its own newly issued shares. Cranmoor Partners effects securities trades for the accounts of unaffiliated clients for a commission and does nothing else. Under the Uniform Securities Act, which one is a broker-dealer?

1. A.Kestrel Foods Inc.An issuer selling only its own securities is excluded from the broker-dealer definition. Its registration concern is the securities offering, not broker-dealer licensing.
2. B.Cranmoor PartnersCorrect. It effects transactions for the accounts of others as a business and is neither an agent, an issuer, nor a bank, so no exclusion reaches it.
3. C.Ilona PrescottAn individual who represents a broker-dealer in effecting trades is an agent, and agents are excluded from the broker-dealer definition. She registers as an agent instead.
4. D.Wrenbury State BankBanks, savings institutions and trust companies are expressly excluded from the definition of broker-dealer under the Uniform Securities Act, no matter how much securities business they do.

Why: A broker-dealer is any person engaged in the business of effecting securities transactions for the account of others or for its own account. The Act then carves three categories out of that definition: agents, issuers, and banks, savings institutions and trust companies. Cranmoor Partners fits the definition and fits none of the exclusions, so it is the broker-dealer. Wrenbury is a bank, Prescott is an agent, and Kestrel is an issuer selling its own stock.

Saint Ivell Hospice, a charitable nonprofit organized exclusively for religious and benevolent purposes, raises money by selling its own bonds. Marguerite Tolworth, the hospice development director, personally describes the bonds to State R donors and takes their subscriptions. She is paid a fixed salary and no commission. Under the Uniform Securities Act, Tolworth:

1. A.must register as an agent, because she solicits members of the public and takes their moneySoliciting the public would matter if the security were not one of the listed exempt securities. Here the exclusion applies on its face.
2. B.must register as an agent of the hospice unless the Administrator grants her a written exemptive orderNo order is needed. The exclusion operates by definition, so there is nothing for the Administrator to grant.
3. C.is not an agent only because she receives no commission on the bondsThe no-commission condition attaches to sales to the issuer own employees and directors, not to sales of nonprofit issuer securities.
4. D.is not an agent for these sales and need not register, because she represents the issuer in transactions in an exempt securityCorrect. Representing an issuer in nonprofit issuer securities is one of the situations placed outside the agent definition.

Why: An individual who represents an issuer in effecting transactions in certain listed exempt securities is outside the definition of agent altogether, and securities of a nonprofit religious, charitable or benevolent organization are on that list. Because Tolworth is not an agent for these sales, no agent registration is required and no exemption needs to be claimed. The analysis turns on the character of the security being sold, not on how she is paid.

Kelmarsh Tidewater Corporation has authorised a new class of preferred stock and has filed a registration statement covering it, but has not yet sold a single share and may abandon the offering. A compliance trainee asks whether Kelmarsh is an "issuer" under the Uniform Securities Act at this point. The correct answer is that Kelmarsh:

1. A.Is not an issuer until it completes its first sale of the preferred stock.Incorrect. The definition expressly includes a person who proposes to issue.
2. B.Is not an issuer unless and until its registration statement becomes effective.Incorrect. Effectiveness governs when sales may occur, not whether the company is an issuer.
3. C.Is already an issuer, because the definition reaches any person who issues or proposes to issue a security.Correct. Proposing to issue is enough.
4. D.Is an issuer only with respect to its already outstanding common stock, not the unsold preferred.Incorrect. Issuer status attaches to the proposed issue as well.

Why: The Act defines an issuer as any person who issues or PROPOSES TO ISSUE a security. A company that has authorised and filed for an offering it has not yet sold is already an issuer; the status does not wait for the first sale, and it is not lost if the offering is later abandoned.

Two sales of Bramber Weald Ceramics common stock settle on the same afternoon. In the first, Bramber Weald itself sells 200,000 newly created shares to raise plant capital. In the second, retired founder Hesper Nunn sells 40,000 shares she has owned since 2011, and every dollar goes to her personally. Under the Uniform Securities Act, which statement is correct?

1. A.Bramber Weald is the issuer and its sale is an issuer transaction, while Nunn sale is a nonissuer transactionCorrect. The proceeds test separates the two: new shares sold for the company account versus existing shares sold for the holder account.
2. B.Nunn is an issuer, because a founder who sells her own shares is deemed to act for the companyNo such deeming rule exists. She receives the proceeds herself and is a selling shareholder.
3. C.Both are nonissuer transactions, because the shares were already authorised by the company charterAuthorisation is not issuance. Selling newly created shares for the company benefit is an issuer transaction.
4. D.Both are issuer transactions, because both involve Bramber Weald common stockThe security is the same but the seller and the destination of the proceeds differ, which is what defines the transaction type.

Why: An issuer is a person who issues or proposes to issue a security, so Bramber Weald is the issuer in the first sale and that sale is an issuer transaction. Nunn is selling shares that already exist and the proceeds go to her rather than to the company, so she is not an issuer and hers is a nonissuer transaction. The distinction drives which registration route and which transaction exemptions are available.