When looking for exemptions from the qualification requirements of the California Corporate Securities Law of 1968, a good place to start is Chapter 1, Part 2, Division 1 of Title 4 of the Corporations Code. Cal. Corp. Code § 25100 et seq. If you don’t find an usable exemption there, another promising place to look is the rules of the Commissioner of Business Oversight. If you still are at a loss, then there are a few more places to look. Here are five gnostic exemptions from qualification that you won’t find in the Corporations Code:
- Motor Clubs. Motor clubs, which are governed by Part 5 of the California Insurance Code, are not subject to the CSL. Cal. Ins. Code § 12160(b).
- California Secure Choice Retirement Savings Trust Act. Starting January 1 of this year, the legislature has exempted from the qualification requirements of the CSL any security issued, managed, or invested by the California Secure Choice Retirement Savings Investment Board within the California Secure Choice Retirement Savings Trust on behalf of an individual participating within the California Secure Choice Retirement Savings Program. Cal. Gov’t Code § 100004(f). I’ll write more about this new law in a future post.
- Nonprofit Cooperative Associations. Chapter 1, Division 20 of the California Food and Agricultural Code governs nonprofit cooperative associations. An association, as defined by that chapter, is not subject “in any manner” to the terms of the CSL and any association may issue its membership certificates or stock or other securities as provided in Chapter 1 without the necessity of any qualification under the CSL. Cal. Food & Ag. Code § 54201.
- California Banks and Trust Companies. The CSL’s qualification requirements do not apply to the offer and sale of securities issued by and representing an interest in or a direct obligation of a bank or trust company incorporated under the laws of California if the securities are offered and sold pursuant to the Department of Business Oversight Commissioner’s authorization described in Financial Code Section 1201 or the securities are exempt from authorization pursuant to Section 1202, or by a regulation or order of the Commissioner. Cal. Fin. Code § 1000. However, California’s authority to require qualification is likely subject to preemption under Section 18 of the Securities Act of 1933. See Federal Preemption And Bank Securities: Was The Commissioner’s Order Really Necessary?
- Credit Unions. The qualification requirements of the CSL does not apply to the sale and issue of membership shares, certificates for funds, and other securities, by credit unions organized under the Financial Code or lawfully doing business in California. Cal. Fin. Code § 14850.
While on the subject of exemptions, it is also useful to remember that Section 18 of the Securities Act preempts state qualification laws with respect to “covered securities”, as defined.