Securities

To view PDF files listed on this page you will need to have Adobe Acrobat Reader installed on your computer. If you are using assistive technologies to view this web site please refer to our Accessibility Options for viewing PDF files.

Overview of Registration of Public Offerings and Exemptions from Registration for Limited Offerings of Securities

Effective July 1, 2009

Securities offered for sale or sold in North Dakota must be registered with the Securities Department unless the security is the subject of an exemption from the registration requirements. Many of the exemptions are self-executing and a notice is not required to be filed. There are other exemptions that do require a filing of an application and provide for an approval process before the offer for sale or sale of the security. It is important to determine whether an instrument falls within the statutory definition of "security". Once it is established that a security is present, the next step is to determine if an exemption would apply to the transaction, if such exemption provides for a filing and approval process or if registration of the security is necessary.

The following is a general discussion of the exemptions from the registration requirements and the registration process most commonly used by issuers who plan to offer a security for the purpose of raising capital in North Dakota. This discussion is not to be considered a complete or comprehensive treatise on the applicable securities law and should not be viewed as a substitute for competent legal counsel. An issuer should review the applicable state and federal securities statutes and rules for the specific requirements to be meet to qualify for an exemption or for registration.

It is important for an issuer to understand that in addition to the securities statutes of North Dakota, there are securities statutes at the federal level and each state has a securities statute. An issuer must take into consideration that registration or the use of an exemption from the registration requirements must occur on the federal level and in any state in which the issuer wants to offer the security.

Securities Exemptions:

Nonprofit Organization
This exemption provides for a filing and approval process for the offer and sale of a security issued by any person organized and operated not for private profit but exclusively for religious, educational, benevolent, fraternal, charitable, social, or reformatory purposes.

Filing Requirements:

Statute Cite 10-04-05(5), N.D.C.C.
Filing Fee: $150.00, Non-refundable
Make check payable to the NORTH DAKOTA SECURITIES DEPARTMENT
Form Required: Nonprofit Organization Claim of Exemption - Form NP
Exhibits Required
1. Proof of current tax status under the Internal Revenue Code
2. Offering disclosure document
3. Consent to Service of Process - Form U-2
Approval Required Prior to Use of Exemption: Yes
Offering Period: One year from the date of approval

Renewal for additional period of one year $100.00

Solicitations of Interest - "Test the Waters"
To use this exemption, the issuer must intend to either use an exemption from the registration requirements or register the security in North Dakota and with the Securities and Exchange Commission. However, no security may be sold, no money can be accepted, and no commitment to purchase the security can be accepted from potential investors during the "test the waters" process. This procedure will permit a business to only solicit indications of interest from potential investors in a proposed securities offering.

There are certain detailed steps, in addition to the following, that an issuer must observe in order to use this exemption.

An issuer must file a solicitation of interest form and copies of any advertising or marketing materials with the securities commissioner for approval at least ten business days before the issuer begins soliciting indications of interest from potential investors.
The issuer must file and obtain the approval of the commissioner for any amendments or changes in previously filed material.
The text of any published notice or script for broadcast, and any printed material delivered must include certain disclosures and information as stated in the Form SOI.
The issuer must stop all communications with prospective investors after filing an application to register or qualify the securities with the commissioner or with the Securities and Exchange Commission.

Filing Requirements:

Statute Cite: Section 10-04-06(15), N.D.C.C.
Filing Fee: None
Form Required: Solicitation of Interest Form - Form SOI
Exhibits Required: Any material to be used to conduct the solicitations of interest.
Approval Required Prior to Use of Exemption: Yes
Solicitation Period: Twelve months from date of approval

Limited Offeree
Offers to sell a security may be made to not more than thirty-five persons who are residents of North Dakota. Certain institutional and accredited investors need not be counted for purposes in calculating the limit of offers. The issuer must reasonably believe that all buyers in this state are purchasing for investment, with the exception of institutional buyers. No commission or other remuneration is paid for soliciting any prospective buyer except to dealers and agents registered in North Dakota. The commissioner may withdraw or condition the exemption, or increase or decrease the number of offerees permitted, or waive the condition relating to the purchasing for investment purposes.

Filing Requirements:

Statute Cite: Section 10-04-06(9)(a), N.D.C.C.
Filing Fee: $150.00, Non-refundable
Make check payable to the NORTH DAKOTA SECURITIES DEPARTMENT
Form Required: Limited Offeree Exemption Application - Form E
Exhibits Required: Stated in Item 10 of the application
Approval Required Prior to Use of Exemption: Yes
Offering Period: Twelve months from date of approval
Final Sales Report Required: Yes
Form Required: Limited Offeree Exemption Final Report of Offers and Sales

Limited Offering for North Dakota Issuers
Offers and sales may be made in this state of common stock, preferred stock, limited liability company membership interests, or limited partnership interests of an issuer. The issuer must reasonably believe that all buyers in this state are purchasing for investment, with the exception of institutional buyers. No commission or other remuneration is paid for soliciting any prospective buyer except to dealers and agents registered in North Dakota. The commissioner may withdraw or condition this exemption or waive the conditions for delivery of an offering disclosure document and the gross proceeds of an offering.

The following steps, in summary form, must be followed by an issuer in order to use the exemption:

The issuer is both organized and has its principal place of business in this state.
No public advertising or general solicitation except tombstone advertisements approved by commissioner is used.
An offering disclosure document approved by the commissioner must be delivered to each offeree no less than seventy-two hours prior to the sale.
The gross offering proceeds may not exceed five million dollars.
All funds are placed in an escrow account until the total offering amount has been sold.

Filing Requirements:

Statute Cite: Section 10-04-06(9)(b), N.D.C.C.
Filing Fee: $150.00, Non-refundable
Make check payable to the NORTH DAKOTA SECURITIES DEPARTMENT
Form Required: North Dakota Issuer Exemption Application - Form E(S)
Exhibits Required: Stated in Item 9 of the application
Approval Required Prior to Use of Exemption: Yes
Offering Period: Twelve months from date of approval
Final Sales Report Required: Yes
Form Required: North Dakota Issuer Exemption Final Report of Sales
Form for Escrow of Funds: Impoundment Agreement - Form S-9
Approval of Tombstone Advertisement: Yes

Incorporation Stage
This exemption allows for the issuance of common stock, limited liability membership interests or limited partnership interests to a person or other subscribers. The following conditions are contained in the exemption:

The number of subscribers may not exceed ten in number.
The offer or sale of the security is for the sole purpose of organization in this state.
The security may not be resold to others for a period of twelve months.
No advertising can be published or circulated.
All sales are consummated within ten days after the date of organization.

Filing Requirements:

Statute Cite: Section 10-04-06(16), N.D.C.C.
Filing Fee: None
Exemption is Self-executing: Yes

Accredited Investor
This exemption is designed to assist small businesses in capital formation from accredited investors without registration in a manner that does not impose unnecessary expenses. One service that can be utilized is The Angel Capital Electronic Network (ACE-Net), which provides an opportunity for entrepreneurs to reach accredited investors with a net worth exceeding $1 million or annual income greater than $200,000.

The exemption provides for the offer and sale of a security by an issuer provided the certain conditions are met, some of which are listed below in summary form:

Sales of the security are made only to persons who are or the issuer reasonably believes are accredited investors as defined in Regulation D, Rule 501, as promulgated by the Securities and Exchange Commission.
The exemption is not available to an issuer that is in the development stage or having no specific business plan or purpose.
The issuer reasonably believes all purchasers are purchasing for investment and will hold such security for at least twelve months.
A general announcement of the proposed offering may be made by inclusion of only certain information.
No telephone solicitation is permitted, unless the issuer reasonably believes the prospective purchaser is an accredited investor.

Filing Requirements:

Statutory Cite: 10-04-06(17), N.D.C.C.
Filing Fee: $100.00, Non-refundable
Make check payable to the NORTH DAKOTA SECURITIES DEPARTMENT
File required forms and materials within 15 days after the first sale in this state:
Accredited Investor Exemption Notice of Transaction
Consent to Service of Process - Form U-2
Copy of the general announcement
Approval Required for Use of Exemption: No

Securities Registrations:

If an offering of securities does not or the issuer elects not to qualify for an exemption from the registration requirements, then the securities must be registered before being offered for sale or sold in North Dakota, unless the offering involves a federal covered security. Some type of securities offerings may be exempt from federal registration, but still require registration in North Dakota or other states in which the offers or sales will be made. The registration for a primary offering of securities may be accomplished by registration by "qualification".

Every securities offering registered in North Dakota must be offered by a dealer and agent registered in North Dakota. This requirement can be accomplished by having the offering sold by a dealer registered with the NASD and North Dakota or in the alternative by the issuer registering itself as a dealer.

Registration by Qualification
Issuers which do not meet the earnings tests stated in the section pertaining to registration by description may file an application, exhibits and fee for registration by qualification. North Dakota does accept the uniform forms including the Form U-7, a uniform form for Small Company Offering Registration(SCOR). The Commissioner may impose certain conditions, limitations, and restrictions on any registration. The right to sell securities shall not be granted in any case where it appears that the sale of securities appears to be unfair, unjust, or inequitable to the North Dakota investing public.

The Form U-7 is a simplified uniform disclosure document using a question and answer format. Information pertaining to the Form U-7 and SCOR Issuer's Manual may be obtained by referencing the North American Securities Administrators Association internet web site: www.nasaa.org.

North Dakota also participates in the Midwest Regional Review Program. The Program allows an issuer, whose offering is exempt from registering federally under either Regulation A or Rule 504 of Regulation D, to file an application simultaneously in each state where it proposes to offer and sell securities. The eleven states participating in the Program are Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, North Dakota, South Dakota, and Wisconsin.

North Dakota also participates in the CR-EQUITY Review Program together with 39 other states. The CR-EQUITY Review Program and Midwest Regional Review Program (CR-SCOR) both provide for a uniform state procedure designed to coordinate the registration process in all states participating in the programs. In addition to creating uniformity in the review process it is also designed to expedite the process by establishing time periods for review and comments. Comments will be received from one or two states designated as lead states.

The protocol, forms and information relating to the CR-EQUITY Review Program and Midwest Regional Review Program (CR-SCOR) may be found at www.coordinatedreview.org or www.securities.state.ks.us/mrrp/mrrpmain.html.

Filing Requirements:

Statute Cite: Section 10-04-08, N.D.C.C.
Filing Fee: 1/10 of 1% of the aggregate amount of each security or class of security to be registered but not more than $2,500.00 with a minimum of $150.00 for each security or class of security to be registered
Forms U-1, U-2, and U-2A with applicable exhibits
Registration required prior to offers and sales: Yes
Offering Period: Twelve months from date of registration
Renewal Fee: $150.00
Make check payable to the NORTH DAKOTA SECURITIES DEPARTMENT
Renewal Procedure: Letter requesting renewal and reporting sales in North Dakota during the past registration period and fee to be filed at least fifteen days prior to the expiration date.
Issuer may register additional securities by filing a written request and fee.

Address for filing:

North Dakota Securities Department
600 E. Boulevard Ave., 5th Floor
Bismarck, ND 58505-0510

Back to Registration Requirements