Rule 147, also known as the intrastate offering exemption, allows for firms to avoid registration with the SEC for intrastate offerings under certain conditions. This exemption seeks to facilitate the financing of local business operations for companies that are 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 Rule 147 exemption is available only if the entire issue is offered and sold exclusively to residents of that single state. If any sales take place to non-residents, the entire issue loses its exemption. It is incumbent upon the issuer to obtain a written statement from each buyer that they reside in that state.

Conditions of Rule 147

The following conditions must be met to have a distribution qualify as an intra-state offering exempt from federal registration:

  • The securities must be offered exclusively to persons resident in the state; persons purchasing the securities must have their principal residence within that state.
  • For six months from the date of the last sale by the issuer of any part of the issue, resales of any part of the issue by any person will be made only to persons resident within the same state (or territory).

To be considered doing business with the state, the issuer must meet at least one of the following conditions:

  • At least 80% of the issuer’s gross revenue must be derived from operations within the state.
  • At least 80% of the proceeds of the offering must be used for business purposes within the state.
  • A majority of the issuer’s employees are based in the state.
  • At least 80% of the issuer’s assets must be located within the state.

Form 147

To qualify, the issuer files Form 147 with the SEC at least 10 business days prior to the effective date of the offering. Member firms underwriting the issue must ensure that all persons to whom offers or sales are made are residents of that state.

Other limitations include the following.

  • All shares being offered must be primary shares.
  • Sales by affiliates are not permitted

Rule 147A

Under the new Rule 147A, issuers can make offers accessible to out-of-state residents, as long as the actual sales are limited to in-state residents. At the same time, the SEC retained the Rule 147 safe harbor under Section 3(a)(11) so that issuers can continue to use state law exemptions that are conditioned upon compliance with both Section 3(a)(11) and Rule 147.

Rule 147A is substantially identical to Rule 147 except that Rule 147A:

  • Allows offers to be accessible to out-of-state residents, so long 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

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