The SEC has adopted final rules to address intrastate and small offerings, further expanding and modernizing the manner in which start-ups and other small businesses are able to raise capital. The final rules amend Rule 147 under the Securities Act of 1933, as amended (the “Securities Act”) to facilitate the continued application of intrastate offering exemptions under State securities laws, including States’ crowdfunding provisions. The rules also create a new exemption, Rule 147A, which will permit general solicitation (including via internet) and will permit sales to residents within a State where the issuer was formed or where such issuer has its principal place of business. In addition, the final rules amend Rule 504 to increase the aggregate amount of securities that may be offered and sold in any 12-month period from $1 million to $5 million, while repealing Rule 505 that limited such offerings to accredited investors and to up to 35 other persons who do not satisfy the financial sophistication standards.
The new Rule 147A and the amended Rule 147 include the following provisions:
- A requirement that the issuer either (a) is formed or (b) has its principal place of business within the State in which the securities are sold (without requiring that issuers be incorporated or organized in the State where they are making the exempt offering under the new rules), and that the issuer satisfy at least one “doing business” requirement;
- A new “reasonable belief” standard for determining the residence of the purchaser at the time of the sale of securities;
- A requirement that the issuer obtain a written representation from each purchaser regarding the purchaser’s residency;
- A six-month limit on resales to persons residing within the State or territory of the offering only;
- An integration safe harbor that would include any prior offers or sales of securities made by the issuer under another provision, as well as certain subsequent offers or resales of securities by the issuer after the completion of the offering; and
- Disclosure requirements, including legend requirements, regarding limitations on resales.
The amended Rule 504 retains the existing requirements, with the following changes:
- An increase in the aggregate amount of securities that may be offered and sold in any 12-month period from $1 million to $5 million; and
- A disqualification of bad actors from participating in an offering (consistent with the requirement of Rule 506).
The final rules also repealed the exemption previously provided under Rule 505. The amended Rule 147 and new Rule 147A will be effective 150 days after publication in the Federal Register. The amended Rule 504 will be effective 60 days after publication in the Federal Register. The repeal of Rule 505 will be effective 180 days after publication in the Federal Register.
The final rules are available here.