In the absence of an exemption, all securities offerings must be registered under both federal and state securities laws and regulations. The SEC must declare the registration statement to be effective before any sales of securities may legally occur. The SEC determines only that all material information has been disclosed, and does not determine whether the offering is fair in terms of the price of the securities or the underlying business of the company. Under Rule 505, no more than 35 non-accredited investors may participate. Accredited investors include certain institutions and those natural persons who qualify in terms of income or net worth, as well as officers and directors of the company.
States also have registration requirements in the absence of applicable exemptions.
Most states have either fully or substantially adopted with certain modifications the Uniform Securities Act of 1956, which generally provides for three methods of securities registration, the main two being registration by coordination and registration by qualification. Registration by qualification applies where states require a full review of the transaction, as for example where the offering is exempt from federal registration but not from state registration. Most states, including Virginia, have specific registration exemptions, many similar to those under Sections 3 and 4 of the Securities Act. Neither of these small offerings can involve general solicitation or advertising. However, Virginia does not have an exemption that coordinates with Rule 504 of Reg.