Registration by qualification
Registration by qualification is the most rigorous method of registering a security at the state level, requiring full disclosure directly to the state administrator. It is typically used for intrastate offerings not registered with the SEC.
Under the Uniform Securities Act, a security that isn't exempt must be registered in each state where it will be sold. Registration by qualification is the method used when an issuer registers directly and solely with the state — most commonly for an intrastate offering that qualifies for the federal intrastate exemption — the issuer is resident and doing business in the state, and sales are made only to residents of that state — and therefore is never registered with the SEC.
Because there is no federal registration to lean on, qualification demands the fullest disclosure of any state registration method. The issuer files detailed information with the state administrator: descriptions of the business, its officers and directors and their compensation, capitalization, financial statements, how offering proceeds will be used, underwriter arrangements, and a copy of the prospectus. The registration becomes effective when the administrator says so — not automatically, and not in tandem with any federal filing.
That timing rule is the sharpest contrast with the other methods. Registration by coordination piggybacks on an SEC registration and generally becomes effective at the same moment as the federal registration, while registration by filing (also called notification) is a streamlined notice for established, seasoned issuers. Qualification is the default route available for any security, but in practice it's the path for small, local offerings that can't use the easier methods.
State securities registration is a staple of the NASAA exams. The Series 63, Series 65, and Series 66 all test the three registration methods — expect questions on who uses qualification, what must be filed, and the rule that qualification becomes effective only when the administrator orders it.
Key takeaways
- Registration by qualification registers a security directly with a state administrator, with no reliance on an SEC filing.
- It is typically used for intrastate offerings that are not federally registered.
- It requires the most extensive disclosure of the state registration methods, including financials and use of proceeds.
- The registration becomes effective only when the state administrator orders it effective.
- The Series 63, 65, and 66 test qualification against registration by coordination and registration by filing.