Which condition would make a security eligible for exemption under Pre-organization certificates?

• A. Payment of a commission to a broker
• B. No commission and the number of subscribers does not exceed 10 and no payment by any subscriber
• C. The issuer is a large bank
• D. The subscribers are all institutional investors

Answer: (B)

The requirement tested is the specific conditions that allow a pre-organization certificate to exempt an offering from registration. This exemption applies only to very limited, early-stage solicitations for a corporation that hasn’t yet issued stock, and it hinges on two key safeguards: no broker commissions and no money changing hands from subscribers, plus a cap on how many people can subscribe.

The correct option describes all three: there is no commission paid to a broker, the number of subscribers does not exceed ten, and no payment is made by any subscriber. When these conditions are met, the pre-organization exemption applies because the offer remains informal and limited in scope, designed to finance the organization itself rather than a true public sale.

Other scenarios don’t fit because they introduce payments or compensation to brokers, or they lack the subscriber-count limit, which removes the exemption. Large-bank status or institutional-investor status doesn’t by itself create this exemption; the protective, narrow criteria focus on the absence of payments and the very small number of subscribers.