Legal Question in Securities Law in California

Re: Registration Requirements

The corporation should not undertake this transaction without having all aspects reviewed by counsel for the corporation. In addition to the registration issue you have raised, splitting stock raises other issues including the number of authorized shares and possible pre-emptive rights of others, etc. etc.

With that caveat, it may be helpful to point out that while a stock dividend or stock split cannot be made with impunity, there are both legislative history in the 1933 Act and case law indicating that a stock dividend or split is not a sale and hence not subject to the registration requirements per se. See, e.g., Gurvitz v. Bregman & Co. (SDNY, 1964) 379 F.Supp.1283. These holdings presume the shareholder is NOT given an opportunity to elect to take cash instead of stock. If such an option is available, the stock distrbuted could be deemed a sale.

Again, have corporate counsel review the issuer's corporate documents, financing commitments, board resolutions etc. before effecting the split.