Private University: A Private Nonprofit Educational Institut

Rivate University A Private Nonprofit Educational Institution Located

Rivate University, a private nonprofit educational institution located in California, decides to issue “Shares in Learning” certificates in a one-time offering to the public. These shares will be sold for $500 each and entitle the bearer to redeem each certificate for two undergraduate or one graduate college credit in any of its schools at any time in the future. The shares may also be resold without restriction by the initial purchaser. The offering will be made via the Internet. Will the offering need to be registered with the Securities and Exchange Commission (SEC) under the Securities Act of 1933? Explain. Does your answer differ if “Shares in Learning” are issued by Private College, a proprietary for-profit institution that does business in all 50 states? Why?

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The issuance of securities by educational institutions, particularly in the form of certificates or shares that confer future benefits or credits, is subject to federal securities laws, primarily the Securities Act of 1933. This legislation mandates registration of securities offerings with the SEC unless an exemption applies. Analyzing whether Rivate University's “Shares in Learning” certificates must be registered requires understanding the nature of the offering and applicable exemptions.

Initially, the nature of the securities is crucial. “Shares in Learning” certificates are sold for $500 each, and they promise future educational credits—specifically, two undergraduate or one graduate credit—that can be redeemed at any time. These certificates resemble investment securities because they involve the payment of money for a document that confers some future benefit, and they are available for resale without restriction—traits characteristic of securities under federal law.

The Securities Act of 1933 broadly defines securities to include any form of investment contract, which generally encompasses investment in a common enterprise with an expectation of profits derived from the efforts of others. Courts have historically used the Howey Test to determine if an arrangement qualifies as an investment contract—a key type of security. Under the Howey Test, an arrangement is a security if it involves an investment of money in a common enterprise with an expectation of profits predominantly from the efforts of others.

Applying this to Rivate University’s offering, the sale of “Shares in Learning” is clearly for monetary investment, and the certificates promise future credits that could enhance educational attainment. The resellability without restrictions further supports the security classification, as it suggests a secondary market akin to securities trading. Therefore, this issuance appears to be an investment in a scheme that could be construed as a security, necessitating SEC registration unless an exemption applies.

However, there are exemptions under the Securities Act. One relevant exemption is for institutional or private offerings. But since the offering is made via the Internet to the general public, it likely does not qualify as a private placement. Certain small offerings may qualify for Regulation D exemptions, but these generally limit sales to accredited investors and involve specific procedural requirements, which are not detailed here. Moreover, educational institutions that are nonprofit entities may invoke certain exemptions if the offering is purely promotional and not investment-oriented, but the nature of “Shares in Learning” suggests an investment aspect.

Regarding the location and nature of the institution, Rivate University, being a California-based nonprofit, would generally comply with federal securities laws. The fact that the offering is online and open to the general public indicates it is a public offering requiring registration unless an exemption applies. Given that the certificates are resalable and promise future credits which may be valuable to purchasers, it is reasonable to conclude that the offering qualifies as a security and, therefore, must be registered with the SEC.

The scenario changes when considering Private College, a proprietary for-profit institution operating nationwide. For-profit entities engaging in securities offerings are equally subject to SEC registration requirements. The emphasis on profit motivates the sale of these certificates, and their resellability heightens their investment-like nature. Federal securities laws do not distinguish between nonprofit and for-profit educational institutions in this context; both are subject to registration obligations when issuing securities to the public. Therefore, the form of the institution (nonprofit versus for-profit) does not fundamentally alter the registration requirement under federal law—the primary factors are the nature of the offering and whether it qualifies for an exemption.

In conclusion, under the Securities Act of 1933, Rivate University’s online sale of “Shares in Learning” certificates likely constitutes a security requiring registration with the SEC because of the investment aspect, resales, and promise of future value. This requirement remains consistent even if the issuing institution is a for-profit enterprise like Private College, which similarly must adhere to federal securities regulations. The critical factors are the characteristics of the security and the method of offering, not solely the profit status of the institution.

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