INTRASTATE OFFERING EXEMPTIONS
|In October 2016, the SEC adopted final rules that modernize how issuers can raise money to fund their businesses through intrastate offerings while maintaining investor protections. The final rules modernize the safe harbor so issuers may continue to use state law exemptions that are conditioned upon compliance with both Section 3(a)(11) and Rule 147 of The Securities Act. The final rules also established a new intrastate offering exemption, Securities Act Rule 147A, that further facilitates intrastate offerings by allowing offers to be accessible to out-of-state residents and making the exemption available to issuers that are incorporated or organized out-of-state.
Rule 147/147A FAQs.
REQUIREMENTS OF RULES 147 AND 147A
In order to conduct offerings pursuant to Rule 147 or Rule 147A, issuers must meet certain requirements. The table below broadly summarizes the requirements for each rule. We refer to “in-state” as the state or territory in which the issuer is resident and doing business at the time of the sale of the security.
|The issuer is organized in-state.||✔|
|The officers, partners, or managers of the issuer primarily direct, control and coordinate the issuer’s activities (“principal place of business”) in-state.||✔||✔|
|The issuer satisfies at least one of the “doing business” requirements described below.||✔||✔|
|Offers are limited to in-state residents or persons who the issuer reasonably believes are in-state residents.||✔|
|Sales are limited to in-state residents or persons who the issuer reasonably believes are in-state residents.||✔||✔|
|The issuer obtains a written representation from each purchaser as to residency.||✔||✔|
“Doing Business” In-State
- Issuers conducting an offering pursuant to Rule 147 or Rule 147A must satisfy at least one of the following requirements in order to be considered “doing business” in-state;
- The issuer derives at least 80% of its consolidated gross revenues from the operation of a business or of real property located in-state or from the rendering of services in-state;
- The issuer had at least 80% of its consolidated assets located in-state;
- The issuer intends to use and uses at least 80% of the net proceeds from the offering towards the operation of a business or of real property in-state, the purchase of real property located in-state, or the rendering of services in-state; or
- A majority of the issuer’s employees are based in-state.
RESTRICTIONS ON RESALES
Securities purchased in an offering pursuant to Rule 147 or Rule 147A can only be resold to persons residing in-state for a period of six months from the date of the sale by the issuer to the purchaser. Issuers must disclose these limitations on resale to offerees and purchasers and include appropriate legends on the certificate or document evidencing the security. Although securities purchased in an offering pursuant to Rule 147 or Rule 147A are not considered “restricted securities,” persons reselling the securities will nonetheless need to register the transaction with the SEC or have an exemption from registration under federal law.
FILING REQUIREMENTS AND RELATIONSHIP WITH STATE SECURITIES LAWS
Issuers conducting an offering pursuant to Rule 147 or Rule 147A are not required to file any information with or pay any fees to the SEC; however, issuers must comply with state securities laws and regulations in the state in which securities are offered or sold. Each state’s securities laws have their own registration requirements and exemptions to registration requirements. Issuers wishing to obtain information should contact the state securities regulator in the state in which they intend to offer or sell securities for further guidance on compliance with state law requirements. Issuers may also obtain useful information on state securities law registration requirements and exemptions to registration requirements by visiting the website of the North American Securities Administrators Association (NASAA) at www.nasaa.org.
The integration doctrine provides an analytical framework for determining whether multiple securities transactions should be considered part of the same offering. This analysis helps to determine whether registration under Section 5 of the Securities Act is required or an exemption is available for the entire offering. Rules 147 and 147A provide issuers with a safe harbor that offers or sales conducted pursuant to Rule 147 or Rule 147A will not be integrated with:
- Prior offers or sales of securities; or
- Subsequent offers or sales of securities that are:
* Registered under the Securities Act, except as provided in Rule 147(h) or Rule 147A(h);
* Exempt from registration under Regulation A;
* Exempt from registration under Rule 701;
* Made pursuant to an employee benefit plan;
* Exempt from registration under Regulation S;
* Exempt from registration under Regulation Crowdfunding; or
* Made more than six months after completion of the Rule 147 or Rule 147A offering.
Intrastate offerings (Rule 147/147A) are subject to state, in not Federal antifraud statues so the same sort of disclosure should be given to residents of that state. Whether your business model is a corporation or LLC, our Reg. D, our SEC compliant offering documents, will help you with the disclosures you need if you elect to utilize a Rule 147/147A capital raise.
|Our SEC compliant documents and other services are not a substitute for the advice of legal counsel.|