SEC Rule 147: Intrastate Offerings
Section 3(a)(11) of the Securities Act exempts from registration:
Any security which is a part of an issue offered and sold only to persons resident within a single State or Territory, where the issuer of such security is a person resident and doing business within or, if a corporation, incorporated by and doing business within, such State or Territory.
This definition should give you the idea that certain offerings that are wholly intrastate—i.e., originated and sold within a single state, as opposed to between multiple states—don’t have to be registered. You may wonder about the exact meaning of some of those phrases: what is “part of an issue,” who is a “person resident,” and what qualifies as “doing business within”? The SEC has anticipated your confusion, and Rule 147 addresses these very questions.
Rule 147 begins with an explanation that the intrastate offering exemption was intended to apply to offerings “genuinely local in character, which in reality represent local financing by local industries, carried out through local investment.” In other words, the exemption applies to offerings that are so limited in their geographic scope that the feds don’t feel the need to get involved. With that purpose in mind, we can sort through the elements that are required for this exemption to apply.
Note that Rule 147 is a “safe harbor” rule. This means that an offering that complies with all conditions of Rule 147 is exempt from registration. However, an offering that fails to meet the standards of Rule 147 could still qualify for the Section 3(a)(11) exemption, but the burden wffould fall to the issuer to show that the offering met all statutory requirements. Since this approach is risky, most issuers who intend to rely on the intrastate transaction exemption will attempt to comply with Rule 147.
Interestingly, neither Rule 147 nor the relevant statutory section imposes a limit