Financial compensation is the act of giving money or various things of monetary value in return for either their products, or services and in recompense for any injury they have incurred.

There are a few types of compensation and they include:


If one has received an injury because of damages of another party, damages can be paid in form of money to the injured party as compensation. The rules that govern damages differ somewhat depending what sort of claim it is. For example a Tort Claim versus a Breach of Contract claim, and where the actual incident took place.

Normally circumstances and under ordinary law, damages are classified into punitive and compensatory.

Compensatory damages – are further broken down into “special damages” which could include loss of earnings, property damage, and medical expenses in fact any economic loss.

General damages – which may encompass emotional distress, pain, suffering things that are not financial.


Payment is the term used when something of value is given to one party (an individual or company) to a second party.

In return for a service, goods or a combination of both. When a payment is made it concludes the transaction and fills all legal obligations.

Bartering is the oldest form of payment known to man, this is when one good or service is swapped for another good or service.

Nowadays payment can be made not just with goods, you can make a payment using cash, check, credit card, debit card, bank transfer.

When companies start trading, the financial beginning starts when an invoice is raised and is concluded when the recipient pays the invoice in full.

However, there are no defining limits what form a payment should take, and it is common in complex business deals that securities are used to fund a payment or part payment obligation.

Legally the party making the payment is classed as the “payer” and the party receiving the payment is called the “payee”.


Royalties can be separated into three different areas or categories: private sector taxes or running royalties, and usually acts as a payment in return for usage.

In this case one party (the licensee) will pay another party (the licensor) for the use of something that the licensor owns, normally a building or an asset, even intellectual property.

They are normally paid as a percentage of any gained revenue from the use of the property, or perhaps from a fixed cost of something that has been sold. There is also other forms and ways of compensation.

Normally a royalty give the licensor an ongoing stream of revenue from future payments for the use of his asset.

This is commonly used in the world of acquisitions and mergers. They are common forms of payment in the oil industry, the music industry as a payment for revenues of the future for the use of an asset or perhaps a leasehold, which may have been given by the original owner.

A license agreement is a legal consensus when terms and conditions are put forward for perhaps patents in trademarks. Copyrights are licensed by one party to another. This is all conducted without any limits or restrictions on terms, geographic territory, type of goods etc. Licensed agreements are usually regulated and especially in the case of government or state owned assets. Usually these are private agreements that go along with standard procedures, but there are also special types of franchise agreements that have similar conditions.

Financial Compensation

As previously referred to, restricted securities (letter stock securities) is what name is given to stock that cannot be traded until all regulatory conditions have first been met. When these terms have been fulfilled the securities may be either bought or sold.

These types of securities are common in rewarding or compensating employees, and normally an agent is engaged for the transfer.

When the terms are met: goals, objectives, financial targets etc. normally the stock is given. Rather than using stock options, restricted securities are commonly used for such rewards to executives due to the favorable tax elements to the company issuing them.

Venture companies quite often use restricted securities together with a mixture of stock options and restricted stock. This stock normally have a guarantee from the employing firm that he will release the stock at some point in the future, this is to push his employees to meet and achieve the conditions laid down. It is also beneficial to the firm’s accounting ledger that come with this sort of stock.

Transfer Agents, Business Agents and Intermediaries

Transfer Agents, Business Agents and Intermediaries are methods of privately held firms being able to trade in stock. These businesses have the expertise and knowledge to help privately owned firms with many factors including marketing and sales. Their professionalism is also useful to protect the identity and financial status of the company in question and the nature of its business. They will expedite meetings and assist in any negotiations with possible future purchasers and most importantly follow the proper due diligence path.

An agency is employed in the business of promoting ownership transactions by a firm on their behalf, whether they are buying or selling. The firm and the agents then become the agents of the principal, who is the company’s client. The other party concerned in the transaction, who has no agency relationship with the firm, is the agency’s customer.

Regulation D

Summary of Regulation Shares and Regulation D

Regulation D under the Securities Act of 1933, as amended (the “Securities Act”) is a safe harbor rule that defines when an offering of securities would be deemed to come to rest abroad so as not to be subject to the registration obligations imposed under Section 5 of the Securities Act. The General Statement to Regulation D applies a territorial approach to Securities Act registration by providing that offers and sales subject to Section 5 include offers and sales that occur within the United States and do not include offers and sales that occur outside the United States. Regulation D also includes several safe harbor exemptions, 1 addressing specified transactions and is usually coupled with an exemption such as Regulation D and are considered to be restricted or controlled securities.

Each Safe Harbor has two general conditions:

The offer of any sale must firstly originate in an “offshore transaction”. Which means that the entity selling really believes that the party that is selling is not in the USA at the time of the offer or sale, or the whole transaction is being undertaken in foreign stock markets. These include the Canadian Stock Exchange working together with the committee, and that any security transfers are not made by prior arrangement and any purchaser in the United States.

A second conditions dictates that no direct sales marketing may be carried out by the issuer in the United States, or any agent, distributor or affiliate acting on their behalf. As these such activities are purely for the purpose of getting the United States markets prepared for the securities.

Category 1

Securities of an outside issuer that there is no demand for in the U.S. markets (detailed underneath) Stocks and Shared marketed by an alien in offshore directed offerings (as set out below) Debt stock that is non-transferable of a U.S issuer, offered in offshore directed offerings that are in not in U.S dollars. Stocks and Shares supported by the full faith and credit of an alien government. In this case normal terms must be met.

Category 2

Equity offerings by reporting alien issuers. The offerings of debt securities and non-convertible, non-participating preferred stock, by reporting issuers or non-reporting foreign issuers. All of this has to be classed by a reporting issuer that has completed and then filed the relevant documentation for a minimum of one year before any sales offer can be raised, or has complied with all relevant reporting commitments.

Any offer that has a restriction, that restriction must be complied with. Including the exclusion of selling to United States citizens during the period of compliance in respect to distribution together with the usual terms.

Which normally means a forty day distribution compliance term (a time when all conditions by individual category are valid) applies. This must all be done by means of a formal contract with the distribution parties with transparent documentation including all letters of acceptance sent to the distributors and any entity getting a transaction involved payment, and includes purchasers whilst the consent period is in operation.

A Safe Harbor exemption is an exemption that is not the exclusive means that must be employed to fall within a more general exemption or jurisdictional limitation. By promulgating a safe harbor, the regulator is affirming that someone complying with its requirements will defiantly have the benefit of the broader exemption or limitation.

Equity by domestic reporting issuers

When the offers of equity securities are by non-reporting foreign issuers and there is a great demand in the U.S. markets and when the share offers by United States issuers that are non-reporting issuers then this is equity by domestic reporting issuers. When this occurs there are strict rules and regulations that govern such transactions.

If debt securities are offered than the same terms apply as those laid down in Category 2, with the addition of a limited worldwide certificate that supports a period of forty days.

In the case of equity securities, this term is increased to twelve months, and the purchaser has to show a certificate that they are of non-US origin, with a surety that they will not try to sell to a U.S. citizen, except in compliance with the U.S. law, and they will abide to all the regulations and terms set down by Regulation D and Category 2.

All securities of a regular non-commercial issuer must display a legend indicating that the securities are restricted, and all relevant transfer stop instructions. The documentation and all materials pertaining, must refer to any conditions on hedge dealings whilst the compliance distribution term is in place of any effect on pre-marketing and selling the securities into America. A compliance document must be issued by any distributor involved stating they adhere to the condition.

Rule 904 – is set out to give a safe harbor for certain resale transactions by the entities that are not the issuer, say a distributor, or agent and any such affiliate (but not a director or officer who is an affiliate solely by nature of his job) or any persons acting on their behalf. These people/firms are subject to the following conditions.

All permitted sellers are subject to these general rules:

  • Any agent or salesman who is receiving payment or commissions cannot make a resale knowingly to a U.S. resident, until the distribution compliance term is finished.
  • In this situation then confirmation documenting all pertinent securities regulations and restrictions must be made available to any other dealer or agent receiving financial compensation.
  • There must be no other persons that gain financially other than an officer or director of the issuer.
  • There is no safe harbor for any agents of the issuer, other than that the affiliation is only because of their office.
  • A representative in this case means that it is a party that is controlling, being controlled by or under any control of the issuer.
  • The meaning of control in this issue, means a de facto control. That is, its power comes from voting rights, which usually comes about at a ten percent level. Outside other elements can also effect this.
  • All transactions have to be done through a designated offshore trading market, in a deal not first arranged with a U.S. citizen or in any discussions involving an outside entity when the purchase order is first raised.
  • All transactions must ensure that no contradictions to the Securities Act registration regulations are taking place, these include for the purpose of erasing any transfer restrictions.

Definition of Regulation D

If you make purchase or are in possession of restricted securities, before selling them public ally you must find a dispensation from the regulations of the regulator. This is normally done utilizing Regulation D as this allows the re-sale of shares if the appropriate terms are met. The following summary highlights these terms, so restricted securities can have their legend removed and then be sold.

Restricted and Controlled Securities

If you buy securities in a private transaction that have not been directly registered from the issuer or their affiliate then this transaction will be termed as a controlled or restricted share buy. Regularly this stock are bought through private placement offerings, employer benefit schemes, Regulation D offerings as a bonus for work carried out, or sometimes for giving seed money to help set up the business. Regulation D(A)(3) states which transactions end in securities being restricted.

Restricted securities are stock that is held by an affiliate of the issuing party. An affiliate could be a director or perhaps a large shareholder who has a strong bond with the issuing party. When the term “control” is used it means influence on board decisions and the running and policies of the business concerned. Normally the affiliate has considerable shareholdings. If the securities were purchased from an affiliate this then is a restricted purchase, even if the stock was not previously restricted.

When you purchase restricted shares you will receive certificated that have a legend on them bearing “restricted”. This shows emphatically what sort of stock it is and that the securities may not be sold in public, unless that is that they happen to be registered with regulators that are exempt from such regulations and rules. When this occurs the certificates will have no legend on them.

Conditions of Regulation D

All terms and conditions of Regulation D must be met if the restricted securities are to be sold. There are other ways besides Regulation D that allows the sale of such securities, but Regulation D does provide a “safe harbor” to selling parties.

Below are listed the rules:

The Holding Period

If you are considering selling controlled securities on the open market they must have been held for a certain amount of time. If the shares are in a Reporting Company it means the firm has complied with the due period and has observed all the necessary reporting regulations laid down by the Securities Act of 1934, which is a time term of six months.

However, if the firm in not a Reporting Company then this term is increased to twelve months. And all the securities must be fully paid before the term comes into operation. Restricted securities are the only securities affected in this manner. If you purchase any stocks and shares on the open market then these are not restricted in any way, so no time limits are operational.

Additional Securities

Additional securities bought from the same issuer do not affect the current stock you hold, if they are of the same type. And if these were purchased from another non-affiliate then they can simply be added to your holdings. The time term for securities bought this way starts when they were purchased and not when they were given. In the case of stock options things are slightly different, the time term starts when the option is taken up and not on the date they were given.

Current Public Information

Before any transactions may be carried out the issuing company must publicly circulate information concerning themselves. If they happen to be reporting companies then they must display that they have adhered to all the relevant issues in the Securities Act of 1934 and completed all relevant reporting regulations. In the case of non-reporting companies particular data must be made available to the public, such as information about the company and what sort of business it trades in, who are the current board and the financial situation of the business.

Trading Volume Formula

There is a regulation that stipulates how many shares can be sold in any three month period and this is termed as the “Trading Volume Formula”, and this states that there cannot be more than 1% of outstanding stock of the same category to be sold. If the category of this stock is listed, then the greater of 1% or the average weekly trading volume before the 4 weeks preceding the notice of sale on Form 144. Over-the-counter securities, including those quoted on the OTC Bulletin Board and the Pink Sheets, must only be sold using the 1% rule.

Ordinary Brokerage Transactions

When an affiliate is involved, sales must be transacted as a normal deal and no extra payments or commissions are allowed to anybody including brokers and agents. Neither of the two parties can advertise to purchase the securities.

After completion of all the required conditions is met according to Regulation D, no restricted securities may be sold in public, unless of course the restricted legend is removed. A transfer agent can do this, but it can only be taken off after a note of consent is received from the issuing party’s legal representative. If no such note or letter materialized the transfer agent cannot act, and no sale can take place. There are some circumstances that will lead to exceptions in this like mergers, liquidations and acquisitions.

To start any procedure to remove a legend from a certificate, the issuing broker should be contacted or the transfer agent, to handle the affair. It can be a complicated business removing a legend and legal fees will have to be paid before action can take place, normally a person familiar with U.S. Securities law is involved.

The regulator will not get involved if there is a doubt if a legend can be removed or not. This matter is solely the responsibility of the securities issuer. There is no federal law that regulates this, only state law will get involved in a dispute.

The following definitions are integral to an understanding of Regulation D

  • “U.S. Persons”: For individuals, based largely on residence, rather than nationality. Entities have residence largely based upon where they are formed, with the exception of identifiable branches of entities, which may themselves be treated as the equivalent of separate organizations. Accredited investors can form an offshore entity that will be treated as a non-U.S. Person for this purpose. Detailed rules govern trusts and estates, and other professional fiduciaries, which are designed to mitigate disadvantages to U.S. professional fiduciaries by ensuring that, subject to certain conditions, offers to them for the account of non-U.S. Persons will not trigger Securities Act Registration, despite the making of an offer to the fiduciary in the United States.
  • “Substantial U.S. Market Interest” or “SUSMI”: Present with respect to a class of equity securities if (i) U.S. securities exchanges and NASDAQ in the aggregate constituted the single largest market for such class of securities in the issuer’s prior fiscal year, or (ii) 20 percent or more of trading in the class equity securities during such period occurred in such U.S. markets and less than 55 percent of trading in such securities took place during that period through the facilities of the securities markets or a single foreign country. Separate SUSMI rules apply in the case of debt securities.
  • “Foreign issuer”: Is a foreign organized entity other than such an entity that has more than 50 percent of its voting securities being held by U.S. residents and either (i) the business of the company is administered principally in the U.S., (ii) 50 percent or more of its directors or executive officers are U.S. residents or (iii) more than 50 percent of its assets are located in the United States.
  • “Overseas Directed Offering”: An offering by a foreign issuer directed into a single country other than the United States to the resident’s thereof in accordance with the local laws and customary practices and documentation of such country.
  • “Offering Restrictions Offering”: Offering restrictions require each distributor to agree in writing that all offers and sales of the securities prior to the expiration of the distribution compliance period (a) shall be made only (i) in accordance with the provisions of the applicable safe harbors, (ii) pursuant to registration of the securities under the Securities Act, or (iii) pursuant to an available exemption from the registration requirement of the Securities Act and (b) for offers and sales of equity securities of domestic issuers not to engage in certain prohibited hedging transactions prior to the end of the distribution compliance period. The offering restrictions also require that all offering material and documents (other than press release) used in connection with offers and sales of the securities prior to the expiration of the distribution compliance period must include statements to the effect that the securities have not been registered under the Securities Act and may not be offered or sold in the United States or to U.S. persons (other than distributors) unless the securities are registered under the Securities Act or an exemption from the registration requirements of the Securities Act is available, and in the case of equity offerings by domestic issuers, statements concerning the hedging prohibition.

Such statements should appear (i) on the cover or inside cover page of any prospectus or offering circular used in connection with the offer or sale of the securities, (ii) in the underwriting section of any prospectus or offering circular used in connection with the offer or sale of the securities, and (iii) in any advertisement made or issued by the issuer, any distributor, any of their respective affiliates, or any person acting on behalf of any of the foregoing. Such statements may appear in a summery form on prospectus cover pages and in advertisements. Broker-dealers must ensure that they are not unlawfully effecting distributions of Canadian securities in the United States in violation of Regulation D and other U.S.securities law requirements. This may result, for example from purchases of small cap issues by foreign accounts from the issuer, a promoter or affiliated entity.

If there is an exemption for resale into the United States market or Regulation D is invoked in affecting distribution.

Such transactions may be found to be in violation of the offers of the sale of the securities. And when sales marketing is carried out by the distributor or the actual issuer, or any agents or affiliates acting on their behalf of any of the aforementioned. This information can sometimes appear in prospectus summary sheets, cover pages and marketing blurb.

All dealers and brokers must adhere to the regulations and ensure they are following the law concerning the sale and distribution of Canadian stock into the U.S which would fall foul of Regulation D and other U.S securities laws and regulations.

This may end in small cap issues being purchased from foreign accounts of the issuer, an agent, or promoter connected using Regulation D or a way to resell into the United States for the purpose of selling. This sort of behavior could possibly contravene rules and regulations of the Securities Act, with considerable consequences.