It is sometimes forgotten that the California Corporate Securities Law of 1968 makes it unlawful to either offer or sell a security in California in an issuer transaction unless that the sale has been qualified or exempt from or not subject to qualification.  Cal. Corp. Code § 25110.  Thankfully, the CSL exempts most offers.  Today's and following posts will review some of these exemptions.

Section 25102(a) exempts from the issuer qualification requirement any offer not involving any public offering.  Although the concept of a private offering is long-standing, when a private offering becomes public is not always clear.  The Commissioner of Business Oversight has provided some guidance in Rule 260.102.1 which provides that no public offering is involved when an offer is made to no more than 35 persons.  That count, however, excludes:

• Those persons described in Section 25102(i) of the Corporations Code and Sections 260.102.10 and 260.105.14 of the Commissioner's rules.
• Officers, directors and affiliates of the issuer and those persons described in Section 260.102.13, subject to the definitions and limitations contained in Sections 260.102.12 and 260.102.13.

For the purposes of the rule, a husband and wife (together with any custodian or trustee acting for the account of their minor children) are counted as one person and a partnership, corporation or other organization which was not specifically formed for the purpose of purchasing the security offered in reliance upon this exemption, is counted as one person.

What if an offer is made to more than 35 persons?  The rule provides that it creates no presumption and the determination of whether or not a transaction involves a public offering will be made without reference to the rule.

The etymologic provenance of "negotiation" is instructive.  It is a combination of the prefix ne meaning not and the Latin word otium meaning leisure or rest.  Thus, to negotiate is to have no rest.