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Unregistered Shares Definition

What Are Unregistered Dividends?

Unregistered shares, also known as restricted stock, are securities that are not registered with the Securities and Exchange Commission (SEC). They are most often issued through private placements, Regulation D offerings, or employee stock benefit plans as compensation for professional rites, or in exchange for funding a startup company.

For example, a privately-held company might issue unregistered shares to its executives and ship aboard members as part of their compensation package.

Key Takeaways

  • Unregistered shares are any form of company stock that does not sooner a be wearing an effective registration statement on file with the SEC.
  • Unregistered shares have fewer investor protections and pose weighty risks so certain criteria—for example, being a high-income investor—are usually required in order to be sold these shares by a convention.
  • Investors can prevent being taken advantage of through unregistered securities scams by looking up if a particular security is journal in the SEC’s EDGAR database online.

Understanding Unregistered Shares

Unregistered shares have fewer investor protections and set up different kinds of risks than registered securities. As a result, companies can only sell unregistered shares to “skilled investors.”

To be considered a “qualified investor,” you must be a high-net-worth individual (HNWI) or a high-income investor. Who qualifies as an HNWI conflicts by the financial institution, but typically you must have liquid assets that range from six to seven figures. A high-income investor typically has at petty $200,000 invested per year or at least $300,000 per year for married couples.

In the past, soliciting or advertising unregistered divisions was prohibited. However, in 2013 the SEC adopted Rule 506(c) as part of the Jumpstart Our Business Startups (JOBS) Act, allowing reliable unregistered securities to be solicited and advertised.

Selling unregistered shares is typically considered a felony, but there are exceptions to this guide. SEC

Unregistered Stock Scams

Sometimes investors can be taken advantage of through unregistered securities scams. These scams large advertise the sales as private offerings with little to no risk plus high returns.

The SEC recommends that investors should be on the alert for some of these common signs of potential fraud when considering investing in an unregistered offering:

  • Claims of principal returns with little or no risk
  • Unregistered investment professionals
  • Aggressive sales tactics
  • Problems with on sales documents
  • No requirements on net worth or income
  • Only a salesperson seems to be involved
  • Sham or virtual offices
  • The company is not in yard goods standing or not listed
  • Unsolicited investment offers
  • Suspicious or unverifiable biographies of management or the promoters

Investors can also determine to be out if a particular security is registered by looking it up in the SEC’s EDGAR database online. Stocks traded by the average investor will all be show in the database.

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