Rule 147 and Section 3 Exemption - Explained
Security Registration Exemptions
Written by Jason Gordon
Updated at September 25th, 2021
- Marketing, Advertising, Sales & PR
- Accounting, Taxation, and Reporting
- Professionalism & Career Development
-
Law, Transactions, & Risk Management
Government, Legal System, Administrative Law, & Constitutional Law Legal Disputes - Civil & Criminal Law Agency Law HR, Employment, Labor, & Discrimination Business Entities, Corporate Governance & Ownership Business Transactions, Antitrust, & Securities Law Real Estate, Personal, & Intellectual Property Commercial Law: Contract, Payments, Security Interests, & Bankruptcy Consumer Protection Insurance & Risk Management Immigration Law Environmental Protection Law Inheritance, Estates, and Trusts
- Business Management & Operations
- Economics, Finance, & Analytics
- Courses
Table of Contents
What is Rule 147 and how does it relate to a Section 3 exemption?Discussion QuestionPractice QuestionAcademic ResearchWhat is Rule 147 and how does it relate to a Section 3 exemption?
Rule 147 of the 33 Act is a safe harbor for section 3(a)(11). It lays out the strict requirements that the issuer must meet to remain within the confines of the statutory exemption. To qualify for the intrastate offering exemption under SEC Rule 147:
the issuer (company) must be incorporated in the state where the offering is made; at least 80% of the issuers revenues must come from business within that state; at least 80% of the issuers assets must be located in that state; and at least 80% of the proceeds of the offering must be used in that state.
As the name of the exemption implies, the issuer and all purchasers of the security must be primary residents of the state in which the securities are sold. As previously stated, a single offer or sale to an out-of-state individual destroys the exemption. Under the broad definition of an offer under the 33 Act, any inadvertent contact with an out-of-state investor regarding the intended offering could be considered an offer to sell the securities. Lastly, a purchaser cannot resell the security to an out-of-state purchaser within 9 months of the issuance.
Note: Ultimately, the issuer bears the burden of verifying the residency of each offeree or potential investor.
Next Article: Section 4 Securities Exemption Back to: SECURITIES LAW
Related Topics
- Registration Exemptions Securities Act of 1933
- What are Exempt Securities and Exempt Transactions?
- What are Restricted Securities?
- Section 3(a)?
- Section 3(b)?
- What is a Rule 147 Exemption?
- What is a Section 4(a) Exemption?
- Section 4(a)(5)?
- What is a Regulation A Exemption?
- What are Regulation D Exemptions?
- What is a Rule 504 Exemption?
- What is a Rule 505 Exemption?
- What is a Rule 506(b) Exemption?
- What is a Rule 506(c) Exemption?
- What is Rule 502(d) and the Rule 144 Safe Harbor?
- Rule 144a
- What are the disclosure requirements for companies employing an exemption?
- What is the requirement to file Form D?
- What is the effect of failing to register an offering under Section 5?
Discussion Question
Why do you think the securities regulations allow for a rule-based exemption (regulation) that is a safeguard against violating the section 3(a)(11) statutory exemption? Do you agree that a purchase who meets the above-referenced characteristics should be considered an in-state purchaser? Why or why not?
Practice Question
ABC Corp plans on an instate issuance of securities. They are worried about violating the section 3(a)(11) statutory exemption and losing the exemption. What options are available to ABC Corps to make certain they do not violate the statutory exemption?