Selling Securities Securities
Under Illinois law, all securities offered or sold in the state must be registered prior to offer or sale, unless exempt by law. The National Securities Markets Improvement Act of 1996 (NSMIA) redefined which securities required state registration. Generally, all national offerings listed on the major exchanges and all mutual funds, as well as securities sold to qualified purchasers (as defined by the SEC) are now solely with the regulatory jurisdiction of the SEC. States may continue to require notice filings and payment of fees, and state anti-fraud authority is preserved, but state registration requirements were preempted by the Act.
Securities (Offering) Registration
- Securities of issuers, including but not limited to notes, stocks, bonds, debentures, certificates of interest or participations in any profit-sharing agreements, fractional undivided interests, limited partnership interests or, in general, any interest or instrument commonly know as a security, must be registered with the Secretary of State prior to offer or sale, unless exempt under law.
- An application for registration on Form U-1, Uniform Application to Register Securities, must be filed with the Secretary of State along with a prospectus or offering document and filing fee. The prospectus or offering document must disclose information about the issuer, the securities being offered for sale, how the proceeds from the sale of the securities will be used by the issuer, how the securities will be sold, and contain audited financial statements. The securities must be sold by a registered securities dealer or registered salesperson(s) for the issuer. Officers of the issuer also may offer or sell the securities provided no commission or other compensation is paid in connection with the sale of the securities. The prospectus or offering document will be reviewed for full disclosure. The securities will be registered when the application is complete and accurate provided there are no statutory disqualifications.
- Material changes to information contained in the prospectus or offering document must be reported to the Secretary of State within two business days after such occurrence along with an amendment or supplement to the prospectus or offering document. Periodic sales reports may be required depending on the registration. The registration is effective for one year unless sooner terminated. The securities may be re-registered if all of the securities were not sold during the initial registration.
- Exam Fee – $300, if applicable
- Filing Fee – 1/20th of 1 percent of the aggregate offering in Illinois with a minimum fee of $500 and a maximum fee of $2,500
- Amendment Filing Fee – $50, if applicable
- Re-Registration Fee – Same as initial fee(s)
Uniform Limited Offering Exemption (ULOE)
- Securities of issuers, including but not limited to notes, stocks, bonds, debentures, fractional undivided interests, limited partnership interests or, in general, any interest or instrument commonly known as a "security," relying on Regulation D, Rule 505 under the Federal Securities Act, may qualify for an exemption from registration under the law.
- A notice on Form D must be filed with the Secretary of State along with a filing fee by the issuer within 15 days of receipt of consideration or the return of a subscription agreement by an investor in this state that results from an offer being made in reliance upon this exemption.
- Disqualification provisions apply to Regulation D, Rule 505 offerings.
- Filing Fee – $200
Private Placement Exemption
- Securities of issuers, including but not limited to notes, stocks, bonds, debentures, fractional undivided interests, limited partnership interests or, in general, any interest or instrument commonly known as a security, to residents of this state to fewer than 35 persons or less than $1,000,000 in aggregate sales, and where no general advertising or general solicitation has occurred in this state and no commission, discount or other remuneration exceeding 20 percent of the sale price of such security has been paid for such sales, may qualify for an exemption from registration under the law.
- A Report of Sale on Illinois Form 4G or Form D(Rule 504) must be filed with the Secretary of State, along with a filing fee by the issuer, controlling person or dealer within 12 months of the first sale to an Illinois resident in reliance upon the exemption. In addition to the name and address of the issuer and, if applicable, the controlling person and dealer, a description of the securities sold and a representation that there was no general advertising or general solicitation, (date of first sale to Illinois resident) and the total dollar amount sold or to be sold must be included.
- Filing Fee – $100
- Late Filing Fee for Failure to File Timely – $100
- Persons engaging directly or indirectly as an agent, broker or principal in the business of offering, selling, buying and selling or otherwise dealing or trading insecurities must be registered as a broker-dealer with the Secretary of State, unless exempt under the law.
- An application for registration on Form BD, Uniform Application for Broker-Dealer Registration, must be filed with the Financial Industry Regulatory Authority, Central Registration Depository (FINRA/CRD) along with the filing fee. An unaudited balance sheet and an Illinois form titled Additional Information required by Section 130.810(b) (3)-(5) and (7) of the Rules for Registration as a Securities Dealer also are required to be filed directly with the Secretary of State. The applicant must have at least one examination-qualified principal to supervise sales activities in this state. The firm will be registered when the application is complete and accurate provided there are no statutory disqualifications.
- Changes that render information on the application inaccurate must be reported to the Secretary of State through the FINRA/CRD within 10 business days after the change occurred. An Illinois Designated Principal Form must be filed annually with the Secretary of State on or before December 31. An Illinois registrant must file annually for re-registration through the FINRA system.
- Filing Fee – $600
- Renewal Fee – $600
- Branch Office Fee – $20 for each office in Illinois
- Late fees are assessed when the required forms or fees are not filed or paid in a timely manner.
- A securities salesperson must be registered with the Secretary of State before he or she may offer, purchase or sell securities on behalf of a securities dealer, issuer or controlling person.
- Firms that are members of the Financial Industry Regulatory Authority (FINRA) must complete and file a Form U-4, Uniform Application for Securities Industry Registration or Transfer, on behalf of each salesperson with the FINRA Central Registration Depository (CRD) together with the filing fee. Non-FINRA member firms, issuers, or controlling persons must file the Form U-4 on behalf of each salesperson directly with the Secretary of State together with the filing fee. Applicants must be at least 18 years of age and have passed the Series 63 or 66 Exam and the Series 7 or other authorized exam depending on the type of securities activity to be conducted. The salesperson will be registered when the application is complete and accurate provided there are no statutory disqualifications.
- Changes that render information on the application inaccurate must be reported by filing an amended Form U-4 with the FINRA/CRD system if a member firm or to the Secretary of State if a non-FINRA firm, issuer, or controlling person within 10 business days after the change occurs. A registered salesperson may transfer from one dealer, issuer or controlling person to another by giving notice to the Secretary of State. Form U-5, Uniform Termination Notice must be filed with the FINRA if a member firm, or the Secretary of State if a non-FINRA firm, issuer, or controlling person within 30 days of the termination of a salesperson. Registration/Licensing must be renewed annually in conjunction with the renewal of the dealer, issuer or controlling person.
- Filing Fee – $150
- Renewal Fee – $150
Audit and Compliance
The Audit and Compliance Division conducts on-site compliance examinations and for-cause audits of branch and main offices of firms registered to sell securities in Illinois. Compliance examinations are conducted to review the books and records of the entity being examined to ensure compliance with the Illinois Securities Law and attendant rules. For-cause audits are usually conducted to assist in an enforcement inquiry. The Division currently has 17 auditors and compliance examiners, and field assistance is provided by other department personnel. Division staff is in constant communication and routinely cooperates with the U.S. Securities & Exchange Commission and the Financial Industry Regulatory Authority.
Sales-persons holding themselves out separately as investment advisers or financial planners remains a problem discovered during audits. In Illinois, anyone holding themselves out to the public as offering these services must register as an investment adviser. In order for a salesperson to rely on an exemption from the definition of an investment adviser, they must not hold themselves out to the public as providing investment advisory or financial planning services. All work product also must be approved by the dealer before it is distributed to the customer or the salesperson is deemed to be acting separate and apart from the dealer and the exclusion is not available. This is true regardless of whether any direct fee is involved, because all sales-persons receive indirect compensation (commissions).
The Secretary of State, Illinois Securities Department or their information providers shall not be liable regardless of the cause or duration, for any errors, inaccuracies, omissions or untimeliness of the information, or for any delay or interruption in the transmission thereof to the user, or for any claims or losses arising therefrom.