Intrastate Offering (Securities) - Explained
What is an Intrastate Offering to Sell Securities?
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What is an Intrastate Offering?
An intrastate offering in the United States refers to an offer to sell securities that are only available for purchase in the state where it is issued. Such offerings are not subject to regulations from the Securities and Exchange Commission (SEC), rather they are subject to state regulators. This removes the requirement of registration under the SEC.
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What Qualifies as an Intrastate Offering?
For an intrastate offering to be exempt from regulations by the SEC, it must satisfy the conditions stated below:
- The offering must be available only to residents of the state in which it is being issued or offered.
- The firm must have conducted a reasonable number of business activities in the state before creating such offering, and;
- The firm must prevent any possibility of a resale of the same securities being offered in another state or location for a period of six months.
For a company to qualify for an intrastate offering, it must have filed a Form D, Notice of Exempt of Offerings of Securities with the Securities and Exchange Commission. Most firms decide to go the route of intrastate offerings as it is way cheaper than registering with the SEC, and also less stressful, and free from several restrictions. In an intrastate offering, there is no limit on the maximum amount which can be raised by a firm, neither is there any limit on the size of the offering or the number of purchases that can be made. However, it is important that companies keep offerings within a particular state, and make sure that all investors or purchasers are residents in such states.
Requirements of Intrastate Offerings: Residency Conditions
For an intrastate offering to remain valid, it is critical that all purchasers and investors are residents of the state in which the offering is being made. Even a single outsider can make the company lose its SEC filing exempt status, and this is why it is important that firms make research on purchasers before doing business with them. As of 2016, issuing companies were given the task of determining the residency requirements of intrastate offerings. Simply put, each firm was given the power to decide who they termed a qualified resident investor and who they deemed unqualified.
Before 2016, many if not all firms depended on written notes from purchasers describing their residency status. A number of firms still make use of these notes to select who is a qualified purchaser and who isn't. Due to the risks and penalties attached to selling offerings to a non-resident purchaser, the handwritten notes from interested investors have been deemed insufficient to determine whether or not a purchaser is qualified and a resident of the state in question. This has led many firms to employ numerous methods of verifying the residential status of a potential purchaser.
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