New “Invest Tennessee Exemption” Takes Effect

Tennessee’s new “Invest Tennessee Exemption” to the state’s securities registration requirements went into effect on January 1, 2015. Like other securities exemption laws recently adopted by other states, Tennessee’s exemption allows for the intrastate offerings of certain securities that do not exceed $1 million. The law sets out the rules for issuers to use this exemption as an alternate way to raise capital.

Under the Invest Tennessee Exemption, securities offerings meeting the following requirements will be exempt from state registration:

  1. The sale of the securities must not exceed $1 million less the aggregate amount received for all sales of securities by the issuer within the twelve months before the first offer;
  2. The issuer must not accept more than $10,000 from any unaccredited investor;
  3. All funds received from the sale of securities must be deposited in a bank or depository institution authorized to do business in the state of Tennessee;
  4. All funds received from the sale of securities must be used in a manner consistent with the written representations made by the issuer to investors;
  5. Before offering to sell any securities, the issuer must provide notice to the Commissioner in writing or electronically identifying the name and addresses of the issuer, those persons selling or offering to sell the securities, and the bank or depository institution where the proceeds will be placed;
  6. The issuer must not be an investment company before or after the sale of securities or subject to reporting requirements under section 13 or 15(d) of the Securities Exchange Act of 1934;
  7. All buyers must be informed prior to the sale that the securities offered fall within this exemption, are not registered under the Tennessee Securities Act, and are subject to the federal limitations on resales;
  8. Neither the issuer, nor any of of its affiliates, directors, officers, general partners, beneficial owners of 10% or more of any class of its equity securities, nor any of the issuer’s promoters, underwriters, or any partner, director, or officer of such underwriter can, among other things:
    1. have been convicted of a criminal offense involving a the offer, purchase, or sale of security, or involving fraud or deceit within the last 5 years;
    2. be subject to any state or federal administrative enforcement judgement involving fraud or deceit in connection with the purchase or sale of a security within the last 5 years; or
    3. be subject to any other order, judgment, or decree that limits in any way the party from engaging in any conduct or practice involving fraud or deceit in connection with the purchase or sale of any security within the last 5 years.

Bob Terry, former Georgia Securities Division Director and attorney at Parker MacIntyre, said, “This exemption, like similar provisions adopted in recent years in other states, offers small businesses the chance to raise capital locally without some of the legal hurdles that have existed in the past. Investment sources attuned to these new rules are continuing to develop, and I think we are seeing the dawn of some exciting new capital opportunities geared for the needs of these entrepreneurs.”

Parker MacIntyre provides legal and compliance services to investment advisers, broker-dealers, registered representatives, hedge funds and issuers of securities, among others. Our regulatory practice group assists financial service providers with the complex issues that arise in the course of their businesses, including compliance with federal and state laws and rules. Please visit our website for more information.