Which conditions make a preorganization subscription exempt from registration?

• A. More than 100 subscribers
• B. No more than 10 subscribers
• C. Commission is paid
• D. Purchases can be made immediately

Answer: (B)

Preorganization subscriptions are exempt from registration only when the offering is kept very small and not compensated. The exemption applies when there are no more than ten subscribers, because a tiny, private group isn’t treated as a public sale. In addition, no commissions can be paid for soliciting subscriptions; paying a commission would move the activity out of the exempt private arrangement. The idea that purchases can be made immediately doesn’t align with the nature of preorganization subscriptions, which are funds collected in anticipation of forming a corporation, with stock issued after formation. Therefore, the condition that makes the exemption is having no more than ten subscribers.