Intrastate Exemption.
We briefly touched on the concept of intrastate exemption in our previous blog series on crowdfunding (available here). As the name suggests, intrastate offerings are transactions that do not involve interstate commerce (hence the exemption, as being outside of the scope of the Securities Act of 1933). This is important because, to qualify for the intrastate offering exemption under Rule 147, the transaction must be “genuinely local in character,” i.e., local financing by local industries carried out through local investment.[1] This means that the issuer is organized and does business in the state where it is offering the securities and makes offers and sales only to residents of that state.[2] In the C&DIs, the SEC answers questions relating to the intrastate exemption.
- Question 141.01. This question asks whether an issuer can rely on the intrastate exemption to offer or sell securities to a person whose principal residence is in the state but who resides temporarily out of the state. The answer is yes.[3]
- Question 141.03. This question asks whether an issuer conducting an intrastate offering can engage in general solicitation. The SEC says it can, as long as offers are made only to persons resident within the state of which the issuer is a resident.[4]
- Question 141.04. This question asks whether an issuer conducting an intrastate crowdfunding can use a third-party internet portal without necessarily making offers to non-residents. The SEC explains that use of the internet would not be incompatible with the requirements of the intrastate exemption, if the portal implements adequate measures so that offers of securities are made only to residents of that state. The SEC says that such measures would include, at a minimum, disclaimers and restrictive legends making it clear that the offering is limited to residents and limiting access to information about specific investment opportunities to persons who confirm that they are residents (e.g., by providing a representation as to residence or in-state residence information, such as a zip code or residence address).[5]
- Question 141.05. This question asks whether an issuer can use its own website or social media platform to offer securities in a manner consistent with the intrastate exemption. The SEC answers in the affirmative, as long as the issuer implements technological measures to limit communications that are offers to residents of the state (e.g., persons whose IP address originates from a particular state) and makes it clear that the offering is limited to residents.[6]
This post was a part of a multi-part series on the SEC’s guidance to clarify details about when registration with the SEC is not needed in the SEC’s latest C&DIs regarding exempt offerings. If you have any questions about the content of this blog or other securities law issues not discussed here, please contact us.
This posting is intended to be a planning tool to familiarize readers with some of the high-level issues discussed herein. This is not meant to be a comprehensive discussion and additional details should be discussed with your transaction planners including attorneys, accountants, consultants, bankers and other business planners who can provide advice for your circumstances. This article should not be treated as legal advice to any person or entity.
Steps have been taken to verify the contents of this article prior to publication. However, readers should not, and may not, rely on this article. Please consult with counsel to verify all contents and do not rely solely on this article in planning your legal transactions.
About the Author
Shawn McBride – R. Shawn McBride is the Managing Member of The R. Shawn McBride Law Office, P.L.L.C., which helps clients in legal issues related to starting companies, joint ventures, raising capital from and negotiating with investors and outside General Counsel functions. Shawn can be contacted at: 407-517-0064; [email protected], or <a ” ” target=”_blank” href=”http://www.rshawnmcbridelaw.com”>www.mcbrideattorneys.com.
[1] 17 C.F.R. § 230.147.
[2] 15 U.S.C. § 77c(a)(11).
[3] SEC, Securities Act Rules: Questions and Answers of General Applicability (Aug. 6, 2015).
[4] Id.
[5] Id.
[6] Id.