The California Corporate Securities Law of 1968 applies a tripartite classification scheme to securities transactions. Corporations Code Section 25110 requires qualification of issuer transactions; Section 25120 requires qualification of recapitalizations, reorganizations and conversions; and Section 25130 requires qualification of "nonissuer transactions". It is important to understand this taxonomy of securities transactions because the allowable methods of qualification and the application of exemptions are dependent upon the character of the transaction.

Oddly, the CSL defines "nonissuer transaction" but not "issuer transaction". Section 25011 defines "nonissuer transaction" to mean "any transaction not directly or indirectly for the benefit of the issuer". This definition is based on the definition of "non-issuer" found in Section 401 of the Uniform Securities Act (Section 25010 defines "issuer"). Under the statute, a transaction is considered to be indirectly for the benefit of the issuer if the issuer receives indirectly any portion of the purchase price of any securities involved in the transaction.

The Commissioner of Financial Protection & Innovation defines "purchase price" for purposes of Section 25011 to include only the specific consideration bargained for in return for the securities. 10 CCR Sec. 260.011. Under this definition, a loan to the issuer falls within the definition of "purchase price". Id. The Commissioner's rule, however, makes it clear that remote, contingent or incidental benefits that may accrue to the issuer do not constitute the "purchase price". For example, the "purchase price" does not include the inducement to a person to become, or remain, an employee of the issuer or perform other services for the issuer, even though the motive of the seller or the purchaser is to obtain that remote, contingent or incidental benefit for the issuer. Id. For example, the sole shareholder of a corporation may agree to sell a portion of her securities to an employee as an inducement for the employee to benefit the company by staying on as an employee. Under the Commissioner's rule, the corporation is not considered to be receiving any portion of the purchase price notwithstanding the selling shareholder's desire to benefit the corporation.

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