Final answer:
A sale of securities occurring outside of the regular business process is called a private securities transaction. An IPO repays early investors and raises capital for expansion but does not promise specific returns. Shareholder-owned company decisions are made by a board of directors elected by shareholders. Option 3) a private securities transaction is the correct answer.
Step-by-step explanation:
The sale of securities outside an associated person's or the employing member firm's regular business is recognized as a private securities transaction. An initial public offering (IPO) is when a firm first sells stock to the public, which includes individuals, mutual funds, insurance companies, and pension funds. The IPO is crucial because it repays early-stage investors such as angel investors and venture capital firms, and it also provides the established company with financial capital to expand operations considerably.
In the context of an IPO, the company does not promise a specific rate of return when it sells stock because the future performance of the company dictates the returns. Decision-making in a company owned by a large number of shareholders is typically undertaken by elected board members, who make significant decisions and policies while the day-to-day operations are managed by company executives.