In 1974 the Securities and Exchange Commission (“SEC”) adopted Rule 147 as a “safe-harbor” for intrastate offerings under Section 3(a)(11) of the Securities Act of 1933 (the “Act.”) On October 30, 2015, the SEC proposed sweeping changes to Rule 147. Notably, the proposed Rule 147 would be “decoupled” from Section 3(a)(11), instead being proposed under the SEC’s general exemptive authority in Section 28 of the Act.
Substantively, the proposal – while still limited to offerings entirely within one state – significantly liberalizes the restrictions on intrastate offerings contained in the current Rule 147 and Section 3(a)(11). First, it allows general solicitation across state lines (i.e., using the Internet), whereas such solicitation is now widely seen as problematic due to the current statutory and regulatory prohibition against offers outside the offering state. The new rule does not prohibit interstate offers, but simply requires that all sales be made to residents of one state.
Also, the current Rule 147 provides that an issuer can make offers or sales only (i) in the state in which it is incorporated or organized; (ii) in the state where its principal office is located; (iii) in the state in which it earns 80% or its revenues and has 80% of its assets; and (iv) if 80% of the proceeds of the offering are used in the state. The proposed Rule 147 basically requires only one of these standards to be met. The proposal also eliminates the requirement that the issuer be incorporated in the state.