State Exempt Transactions

⚠️ Which one does this chapter cover?

• Exempt transactions let a non-exempt security be offered or sold without registration when the sale happens in a specific type of transaction.
• A non-exempt security is a security that isn’t exempt based solely on what it is. Most securities — including the vast majority of stocks — are non-exempt.

🔑 The chapter’s own summary of the distinction:

🔑 Memory device from the text:

Many test takers remember exempt securities as nouns, while exempt transactions are verbs. An exempt security is exempt based on what it is (a noun), while an exempt transaction provides an exemption based on an action (a verb).

🔑 The complete USA list of exempt transactions

Detail on each exempt transaction

Private placements

• Regulation D (discussed in a previous chapter) is the federal version of a private placement. A private placement is a non-public sale of a security to a small group of investors.
• The USA (state) has its own private placement exemption that applies when the transaction will take place intrastate (in one state only).

🔑 Conditions:

Example: A local business in your state wants to raise capital by selling stock while avoiding state registration of the security. The company offers the security to you plus 9 other retail investors and pays no commission. You purchase the stock for investment purposes and now hold an unregistered, non-exempt security. The issuer was able to sell its stock without registering it because of how it was sold (an exempt transaction).

• You now hold a restricted security that can’t be sold in the public markets until it’s registered. That doesn’t mean you can’t sell it at all. If you can rely on an exempt transaction yourself (often one of the transactions below), you may be able to sell the security without registration.

Isolated non-issuer transactions

As per the USA:

Any isolated non-issuer transaction, whether effected through a broker-dealer or not [is considered an exempt transaction]

The USA is fairly broad here, so it helps to unpack the terms:

• In many cases, an isolated non-issuer transaction happens between family members, friends, or colleagues.
• Continuing the earlier example: after buying stock in a private placement, you could sell that non-exempt, unregistered stock to a friend and rely on this exemption — as long as it doesn’t become a frequent, repeated activity. This allows the sale to occur legally without registration.

Unsolicited non-issuer transactions

• If you want to sell your non-exempt, unregistered stock but can’t find an interested friend or family member, you can contact your broker-dealer for help selling it — as long as the order is unsolicited.
• ⚠️ Key point: the broker-dealer can’t recommend the transaction in any way.
• The broker-dealer may also ask you to sign a non-solicitation letter (some state administrators require this). The letter states that you chose to sell without being solicited or pressured by the broker-dealer.

Certain fiduciary transactions

• A fiduciary is a person placed in charge of managing another person’s assets or belongings.

🔑 The USA specifically identifies these fiduciaries as qualifying for exempt transactions:

Debt-related transactions

• Some loans are secured (collateralized). For example, a mortgage is a secured loan: if the homeowner can’t make the required payments, the lender can repossess the property (the collateral).
• A person can also pledge a non-exempt unregistered security as collateral for a loan. If the loan isn’t repaid, the lender can sell the security under this exemption to recover the borrowed money.
• ⚠️ The USA sometimes describes these as bona fide loans, meaning legitimate loans. This would not apply if someone pledged a non-exempt unregistered security as collateral while intending to default immediately. In that situation, the “loan” would likely be an attempt to sell the security while improperly claiming this exemption.

Transactions between issuers and underwriters

• Many public offerings begin with a sale from the issuer to underwriters. An underwriter is a financial firm that sells securities on behalf of issuers.
• In a previous chapter, the text discussed how Morgan Stanley and Goldman Sachs acted as co-lead underwriters on the AirBnB initial public offering (IPO). Before Morgan Stanley and Goldman Sachs sold AirBnB stock to the public, they first purchased the stock from AirBnB.

Institutional transactions

• Throughout this material, institutional investors don’t receive many of the same protections required for retail investors. For that reason, the USA allows sales to many institutional investors to occur without registration of the security.

🔑 The following institutions are specifically mentioned:

Offer of pre-organization certificates

• A pre-organization certificate is a pledge by an investor to purchase a security in the future from an organization that has not yet been formed. Companies use them to help ensure access to capital once the company is officially formed.

🔑 This exemption applies as long as:

📌 Exam example from the text

All of the following are exempt transactions according to the Uniform Securities Act, EXCEPT:

• A) An offer of securities to 8 retail investors in a 12-month period
• B) An offer of a Treasury bond to hundreds of retail investors
• C) An offer of a pre-organization certificate to 9 potential subscribers
• D) An offer of common stock to an institutional investor

Answer: B — An offer of a Treasury bond to hundreds of retail investors

The other answers involve exemptions based on how the transaction is performed:

⚠️ Administrator’s power to remove exemptions

• In the exempt securities chapter, non-profit and employee benefit security exemptions can be removed by the state administrator if fraud or another “sketchy” situation is suspected.
• ⚠️ The same concept applies to ALL the exempt transactions discussed above.

🔑 Numbers & deadlines

Key points

State exempt transactions

• Private placements
  • Offer made to 10 or fewer retail investors
  • Purchase made for investment purposes
  • No commissions to be collected from retail investors
• Isolated non-issuer transactions
• Unsolicited non-issuer transactions
• Certain fiduciary transactions
  • Estate executors and administrators
  • Sheriffs and marshals
  • Receiver
  • Trustee in bankruptcy
  • Guardians and conservators
• Debt-related transactions (bona fide loans)
• Transactions between issuers and underwriters
• Institutional transactions
• Offer of pre-organization certificates
  • No more than 10 subscribers

Sources

Primary/official references for the material in this chapter. Every link was fetched and returned HTTP 200 on 2026-08-15.