Question 1

The Securities Act of 1933 is the main body of federal law governing the creation and sale of securities in the United States.

Accepted Answer

The Securities Act of 1933 is indeed the main body of federal law governing the creation and sale of securities in the United States.

Question 2

Offerings and sales of securities are regulated under the Securities Act of 1933 and state blue-sky laws.

Accepted Answer

Offerings and sales of securities are regulated under the Securities Act of 1933 and state blue-sky laws in order to protect investors and ensure fair and transparent practices.

Question 3

The Securities Exchange Act was passed in 1933, and the Securities Act was passed in 1934.

Accepted Answer

The Securities Act was passed in 1933, and the Securities Exchange Act was passed in 1934.

Question 4

The Investment Advisers Act of 1940 provides a definition of an investment company.

Accepted Answer

The Investment Advisers Act of 1940 does not provide a definition of an investment company. Instead, this is covered by the Investment Company Act of 1940.

Question 5

Title III of the JOBS Act of 2012 establishes a small offering registration exemption and calls for SEC rules relating to the sales of securities to an Internet "crowd" (securities crowdfunding).

Accepted Answer

Title III of the JOBS Act of 2012 does establish a small offering registration exemption and calls for SEC rules on securities crowdfunding.

Question 6

It is usually easier to transfer ownership in a proprietorship relative to a corporation.

Accepted Answer

In a proprietorship, the business is owned by a single individual, making the transfer of ownership more complex as it involves the sale or transfer of the entire business. In contrast, a corporation has shares that can be easily bought, sold, or transferred, making ownership transfer simpler and more flexible.

Question 7

Regulation of investment companies (including professional venture capital firms)is carried out under the Investment Company Act of 1940.

Accepted Answer

The regulation of investment companies, including professional venture capital firms, is carried out under the Investment Company Act of 1940.

Question 8

The typical business organization for a venture in its rapid-growth stage is a partnership or LLC.

Accepted Answer

While a partnership or LLC may be appropriate in some cases, a common structure for a venture in its rapid-growth stage is a corporation, which allows for easier access to capital and attracts potential investors.

Question 9

The trading of securities is regulated under the Securities and Exchange Act of 1964.

Accepted Answer

The Securities and Exchange Act was actually established in 1934, not 1964.

Question 10

The objective of the Jumpstart Our Business Startups (JOBS)Act of 2012 is to stimulate the initiation, growth, and development of small businesses.

Accepted Answer

This is the stated objective of the JOBS Act, as outlined in its title and purpose.

Question 11

Title II of the JOBS Act of 2012 eliminates the general solicitation and advertising restriction for Regulation D 506 offerings.

Accepted Answer

Title II of the JOBS Act of 2012 did eliminate the general solicitation and advertising restriction for Regulation D 506 offerings.

Question 12

Investor liability in a proprietorship or corporation is unlimited.

Accepted Answer

In a proprietorship, the investor (owner) has unlimited liability, meaning they are personally responsible for the business's debts. However, in a corporation, liability is limited; investors (shareholders) are only liable up to the amount they invested.

Question 13

The Investment Company Act of 1940 defines investment companies and excludes them from using some of the registration exemptions originating in the 1933 Act.

Accepted Answer

The Investment Company Act of 1940 does define investment companies and excludes them from using some of the registration exemptions originating in the 1933 Act.

Question 14

Investor liability in a limited liability company (LLC)is limited to the owners' investments.

Accepted Answer

Limited liability companies (LLCs) provide a limitation on the extent to which the investors in the company can be held liable for the company’s actions or debts. The liability of the investors is limited to the amount of their investment in the company, and their personal assets are protected from any potential lawsuits or financial obligations of the LLC.

Question 15

State laws designed to protect high net-worth investors from investing in fraudulent security offerings are known as blue-sky laws.

Accepted Answer

Blue-sky laws are state regulations established to protect investors against securities fraud by requiring sellers of new issues to register their offerings and provide financial details. This allows investors to base their judgments on solid data.

Question 16

Ventures in the rapid-growth stage often need to seek new investors through large private or public offerings.

Accepted Answer

In the rapid-growth stage, ventures may require additional funding to support their growth. This can be achieved through large private or public offerings to attract new investors.

Question 17

The life of a proprietorship is determined by the owner.

Accepted Answer

The owner of a proprietorship has complete control and decision-making power over the business, including its lifespan. They can choose to continue operating the business, sell it, or close it at any time.

Question 18

Blue-sky laws are federal laws designed to protect individuals from investing in fraudulent security offerings.

Accepted Answer

Blue-sky laws are state laws, not federal laws, designed to protect individuals from investing in fraudulent security offerings.

Question 19

The Securities Exchange Act of 1934 provides for the regulation of securities exchanges and over-the-counter markets.

Accepted Answer

The statement is true. The Securities Exchange Act of 1934 regulates securities exchanges and over-the-counter markets in the United States.

Question 20

According to the Investment Advisers Act of 1940, a bank would not be classified as an "investment adviser."

Accepted Answer

The Investment Advisers Act of 1940 does not classify banks as investment advisers. Instead, they are subject to separate regulatory requirements under banking laws.

Quiz 8: Securities Law Considerations When Obtaining Venture Financing