New Rules To Facilitate Intrastate and Regional Securities Offerings
December 8, 2015
Securities and Exchange Commission Seeks to Facilitate Intrastate and Regional Securities Offerings
When the Securities and Exchange Commission (SEC) announced its finalized crowdfunding regulations in October, it also proposed additional rule amendments that would further help small businesses raise capital. The SEC’s proposal would amend existing securities rules to facilitate intrastate and regional securities offerings.
The proposed SEC rules would amend Securities Act Rule 147 and Rule 504 of Regulation D. Below is a brief summary of the potential changes:
Proposed Amendments to Rule 147
In its current form, Rule 147 provides a safe harbor for complying with the intrastate offering exemption under Section 3(a)(11) of the Securities Act, which exempts offers and sales of securities by an issuer to residents of the same state. Proponents of modernizing the rule argue that it does not reflect current business/marketing practices (i.e. the use of the Internet and social media) and hinders companies from taking advantage of state crowdfunding regulations because such laws generally require compliance with Section 3(a)(11).
As detailed by the SEC, the proposed rule changes would authorize companies to raise money from investors within their state without concurrently registering the offers and sales at the federal level. The amendments would specifically:
- Eliminate the restriction on offers, while continuing to require that sales be made only to residents of the issuer’s state or territory.
- Refine what it means to be an intrastate offering and ease some of the issuer eligibility requirements in the current rule.
- Limit the availability of the exemption to offerings that are registered in-state or conducted under an exemption from state law registration that limits the amount of securities an issuer may sell to no more than $5 million in a 12-month period and imposes an investment limitation on investors.
Proposed Amendments to Rule 504
The proposed changes to Rule 504 would increase the aggregate offering amount limitation for the first time since 1988, as well as add investor protections. More specifically, the rule proposal would increase the aggregate amount of securities that may be offered and sold under Rule 504 in any 12-month period from $1 million to $5 million and disqualify certain bad actors from participation in Rule 504 offerings.
The SEC is seeking public comment on the rule proposals until January 11, 2016. We will continue to track the status of the proposed amendments and provide updates as they become available.