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Topic
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Lux Limited Partnership intends to offer $600,000 of its limited partnership interests under Rule 504 of Regulation D of the Securities Act of 1933. Which of the following statements is correct?
A. The resale of the limited partnership interests by a purchaser may be restricted.
B. The limited partnership interests may be sold only to accredited investors.
C. The exemption under Rule 504 is not available to an issuer of limited partnership interests.
D. The limited partnership interests may not be sold to more than 35 investors.
The correct answer is A.
Explanation:
A limited partnership interest is considered a security. Consequently, the sale of the interest may be restricted under federal securities regulations.
Regulation D is a combination of the private placement and small issue exemptions. Issuers must file Form D, which lists minimal information, with the SEC. Regulation D has three separate thresholds with differing requirements:
SEC Rule 504 can only be used by companies not reporting to the SEC, usually closely-held companies. No registration is required if no more than $1 million of securities are sold within a 12-month period with the following:
No limit on the number of investors
No general public offering or advertising
No restrictions on resale by the investor
If the securities are registered exclusively under a state blue-sky law that allows it, general solicitation and general advertising may be permitted. However, sales are allowed only to “accredited investors.”
Why is answer A correct? The explanation says that there are no restrictions on resale by the investor.
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