Intrastate Offerings

Section 3(a)(11) of the Securities Act is generally known as the “intrastate offering exemption.” This exemption seeks to facilitate the financing of local business operations. To qualify for the intrastate offering exemption, a company must:

• be organized in the state where it is offering the securities
• carry out a significant amount of its business in that state and
• make offers and sales only to residents of that state

The intrastate offering exemption does not limit the size of the offering or the number of purchasers. A company must determine the residence of each offeree and purchaser. If any of the securities are offered or sold to even one out-of-state person, the exemption may be lost. Without the exemption, the company would be in violation of the Securities Act if the offering does not qualify for another exemption.

Rule 147 is considered a “safe harbor” under Section 3(a)(11), providing objective standards that a company can rely on to meet the requirements of that exemption. Rule 147, as amended, has the following requirements:

• the company must be organized in the state where it offers and sells securities
• the company must have its “principal place of business” in-state and satisfy at least one “doing business” requirement that demonstrates the in-state nature of the company’s business
• offers and sales of securities can only be made to in-state residents or persons who the company reasonably believes are in-state residents and
• the company obtains a written representation from each purchaser providing the residency of that purchaser

Securities purchased in an offering under Rule 147 limit resales to persons residing within the state of the offering for a period of six months from the date of the sale by the issuer to the purchaser. In addition, a company must comply with state securities laws and regulations in the states in which securities are offered or sold.

Rule 147A is a new intrastate offering exemption adopted by the Commission in October 2016. Rule 147A is substantially identical to Rule 147 except that Rule 147A:

• allows offers to be accessible to out-of-state residents, so long as sales are only made to in-state residents and
• permits a company to be incorporated or organized out-of-state, so long as the company has its “principal place of business” in-state and satisfies at least one “doing business” requirement that demonstrates the in-state nature of the company’s business

Additional Information and Resources

• Intrastate Offering Exemptions: Guidance for Issuers
• Press Release: SEC Adopts Final Rules to Facilitate Intrastate and Regional Securities Offerings
• Staff Guidance: Rule 147 Compliance and Disclosure Interpretations (Section 141)

Relevant FAQs

• Do the anti-fraud provisions apply?
• Do state law requirements apply?
• How can an investor resell non-restricted securities?