Acknowledgment regarding buyer’s purchase of securities: Overview, definition, and example
What is an acknowledgment regarding buyer’s purchase of securities?
An acknowledgment regarding buyer’s purchase of securities is a contractual provision in which the buyer confirms their understanding of the risks, terms, and legal implications associated with purchasing securities. This clause ensures that the buyer is aware of relevant regulations, investment risks, and restrictions before completing the transaction.
For example, in a private placement of securities, the buyer may be required to acknowledge that the securities are restricted and cannot be freely resold without complying with applicable securities laws.
Why is an acknowledgment regarding buyer’s purchase of securities important?
This acknowledgment is important because it protects issuers, sellers, and intermediaries from legal claims by ensuring that the buyer understands the nature of the securities purchase. It also helps comply with securities regulations, such as the Securities Act of 1933, which requires investors in certain securities offerings to meet eligibility criteria.
Key reasons for including this acknowledgment:
- Confirms the buyer’s eligibility (e.g., whether they qualify as an accredited investor).
- Reduces legal risk for issuers and sellers by ensuring the buyer understands restrictions.
- Prevents future disputes by documenting that the buyer accepted the risks associated with the securities.
Understanding an acknowledgment regarding buyer’s purchase of securities through an example
Imagine a venture capital firm purchases shares in a private startup through a Regulation D private offering. The startup requires the firm to sign an acknowledgment stating that:
- The shares are not registered with the SEC and have resale restrictions.
- The firm is aware of the risks involved in investing in an early-stage company.
- The startup has made no guarantees regarding future returns.
Similarly, an individual investor purchasing corporate bonds in a secondary market transaction may be required to acknowledge that they have conducted their own due diligence and that the seller has made no representations regarding future bond performance.
An example of an acknowledgment regarding buyer’s purchase of securities clause
Here’s how this clause might appear in a securities purchase agreement:
"The Buyer acknowledges and agrees that the Securities being purchased under this Agreement have not been registered under the Securities Act of 1933 or applicable state securities laws. The Buyer represents that it is purchasing the Securities for its own account, not for distribution, and understands that the Securities may be subject to restrictions on transfer. The Buyer further acknowledges that no representations or guarantees have been made regarding the future performance or liquidity of the Securities."
Conclusion
An acknowledgment regarding buyer’s purchase of securities confirms that the buyer understands the risks, restrictions, and regulatory requirements associated with the transaction. It protects issuers from liability and ensures compliance with securities laws.
By including this clause in securities agreements, companies and sellers can document investor awareness, reduce legal exposure, and establish clear terms regarding the purchase and resale of securities.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.