Legality Opinions
Item 601(b)(5)(i) of Regulation S-K requires that all 1933 Act filings include an opinion of counsel regarding the legality of the securities being offered and sold pursuant to the registration statement. As a general rule, counsel’s signed legality opinion must be filed as an exhibit to the registration statement before it becomes effective, and the opinion may not be subject to any unacceptable qualifications, conditions or assumptions. In general, legality opinions must state that the securities are legally (or validly) issued, fully paid, non-assessable and, if debt securities, binding obligations of the registrant.
Among other things, the bulletin:
- confirms the Division will not accelerate the effectiveness of a registration statement if counsel does not opine that the securities will be legally issued, but if counsel opines that the securities are not fully paid or are assessable, the effectiveness of the registration statement may be accelerated as long as the disclosures about partial payment or assessability are adequate;
- states that when a foreign corporate registrant registers the offer and sale of shares, foreign counsel or U.S. counsel that is competent to opine on the applicable foreign law must provide a legal opinion in the same manner as for a U.S. registrant, and that counsel must opine on the laws of the registrant’s jurisdiction of incorporation, including whether the shares are legally issued, fully paid and non-assessable as those terms are understood under U.S. law;
- notes Counsel must opine on the legality of registered offers of options, warrants or rights to purchase securities, as well as on the legality of the underlying securities;
- clarifies that when the registrant registers the offer and sale of units comprised of two or more underlying securities, the opinion must address the legality of each component of the unit, as well as the unit itself; and
- affirms that purchasers of securities in registered offerings are entitled to rely on the opinion, and that the Division does not accept any limitation on reliance.
Regulation S-K requires opinions on tax matters for filings on Form S-11, filings to which 1933 Act Industry Guide 5 applies, roll-up transactions and other registered offerings where the tax consequences are material to an investor and a representation about the tax consequences is included in the filing. Legal counsel or an independent public or certified accountant can provide the Item 601(b)(8) tax opinion, which supports the tax matters and the consequences to shareholders. A revenue ruling from the Internal Revenue Service also will satisfy the requirement. Among other things, the bulletin:
- indicates that tax opinions only have to address material federal tax consequences, and the registrant may recommend in the prospectus that investors seek the advice of their tax counsel or an adviser with respect to any state tax consequences;
- advises that a tax opinion should address and express a conclusion for each material federal tax consequence, should identify the applicable IRS provision, regulation or revenue ruling, and if counsel or the accountant is unable to opine on a material tax consequence, the opinion should state that fact, provide the reason and discuss possible alternatives and risks to investors;
- agrees that a tax opinion may be conditioned or qualified as long as the disclosure is adequate, that counsel or the accountant must disclose the assumptions on which the opinion is based, and that assumptions about future facts or conduct, if limited and reasonable, are acceptable;
- explains that counsel or an accountant may issue a “should” or “more likely than not” opinion if there is a lack of authority that directly addresses the tax consequence of the transaction, conflicting authority or significant doubt about the tax consequences, and that in these instances the staff expects an explanation, including a description of the degree of uncertainty.
