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Preorganization Subscriptions

Statute: § 551.202(25), Wis. Stats.

Used for:  Offers and sales of preorganization subscriptions.

Note:  The subscription must not be binding and no payment may be made by any subscriber until the securities subscribed for may legally be sold.  Also, no commission or other remuneration may be paid for soliciting subscribers; and no advertising may be published, broadcast, or circulated unless allowed by the Division.  However, if advertising is distributed to ten or fewer persons in Wisconsin, it is not defined as being "circulated."

Filing requirement: No filing (nor any Consent to Service of Process) is necessary in order to claim this exemption, unless advertising is "published" or "circulated," as defined in § DFI-Sec 1.02(1)(a) and (b), Wis. Adm. Code, in connection with the transaction or the securities underlying the transaction for which this exemption is being claimed. If any advertising is published or circulated in connection with this transaction or the securities underlying this transaction, it must be filed with the Division and may not be used unless and until the Division has allowed its use. If advertising is filed, a fee of $10 per item, as set forth at § DFI-Sec 7.01(4), Wis. Adm. Code, must accompany the filing.

Administrative Code references: § DFI-Sec 7.01(4)(b), Wis. Adm. Code.

Related Considerations:  Any business that has already been formed is ineligible to use this exemption.  However, the Solicitations of Interest exemption may be considered for such businesses, and may be used by businesses in the preorganization stage as well.

Frequently asked questions:

Q: Is this exemption self-executing?

    A: Yes, but only so long as no advertising is published or circulated.  No filing or Consent to Service of Process is required.  If advertising is published or circulated, it must be filed with the Division and may not be used unless and until the Division has allowed its use.  If advertising is filed, a fee of $10 per item, as set forth in § DFI-Sec 7.01(4), Wis. Adm. Code, must accompany the filing.

History: Predecessor statute 551.23(9), Wis. Stats., adopted on January 1, 1970.  It substantially differed from the parallel section of the Uniform Securities Act of 1956, § 402(b)(10).  The Uniform Act of 1956 does not contain an advertising prohibition, which was added to the predecessor Wisconsin Act by amendment effective 10/1/71.  Nor does the Uniform Act section require that the subscription be non­binding.  The Uniform Act exempts preorganization "certificates or subscriptions," while the Wisconsin Securities law expressly exempts subscriptions only. Renumbered effective January 1, 2009.


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