The formation of a subsidiary under the laws of a foreign country may not seem to implicate the California Corporate Securities Law. Yet, an offer and sale may occur “in this state” within the meaning of Corporations Code Section 25008. See California’s Blue Sky Law Problems for Foreign Issues and Foreign Issuers, 23 Insights 28 (July 2009) and Yes, There Is No “S” In California.

If the subsidiary is a corporation that is issuing common shares, Rule 260.105.22 may prove to be a handy exemption. The rule exempts offer and sales of common shares issued by any corporation organized under the laws of a foreign country, provided the following conditions are met:

  • After completion of the offering, 100% of the outstanding capital stock of the issuer is owned by a corporation, directly or indirectly, in its own name or in the name of nominees or other persons holding for the sole benefit of that corporation;
  • The acquiring corporation represents that the securities are purchased for its own account for investment and not with a view to, or for sale in connection with, any distribution of the shares; and
  • All of the shares are evidenced by certificates that have stamped or printed prominently on their face a legend in the form prescribed by Rule 260.141.11.

The last condition may make this exemption less attractive than others because future transfers will be subject to the limitations on transfer set forth in Rule 260.141.11.