What Is Rule 147?
Rule 147 is a rule that can be used by a company to raise funds without actually registering with the Securities and Exchange Commission (SEC). Also known as the “safe harbor” rule, it usually only applies to small companies that want to raise money locally without incurring the expensive fees associated with registering with the SEC.
Key Takeaways
- Rule 147 is the SEC’s interpretation of Section 3(a)11 of the Securities Act, which exempts securities issued locally from regulation, such as required disclosures, under the Act.
- Rule 147 was originally created in 1974 to provide markets with greater certainty as to how the SEC would apply the Act, and was subsequently updated in 2016.
- The current version of Rules 147 and 147A allow greater flexibility for offering securities through modern technology and institutions, and in areas where companies operate, rather than their home state of incorporation.
Understanding Rule 147
This rule applies to Section 3(a)11 of the Securities Act of 1933, or the intrastate offering exemption.As such, the rule is also called the intrastate offers and sales rule. This section is intended to allow issuers with localized operations to sell securities as part of a plan of local financing.
To qualify for exemption under Section 3(a)11, the company would have to show that:
- The issuer is a resident of the state in which the offering occurs and, if the company is a corporation, it is in that state.
- The issuer does a substantial amount of its business in that state.
- The proceeds of the offering will be used within that state.
- All the offerees and purchasers of the securities are residents of that state.
- The securities offered come to rest in the hands of persons residing in that state.
- The entire issue of the securities falls under section 3(a)(11).
The rule was adopted in 1974 with the intent to provide greater certainty to companies on a regular set of conditions, under which the SEC would consider issuance of securities to be exempt under Section 3(a)11. However, at the time, the SEC emphasized that its rule was not exclusive; not complying with the rule would not create a presumption against a claim for exemption under Section 3(a)11.Under Rule 147, the SEC interpreted that the requirements of Section 3(a)11 had been met if:
- The company is incorporated in the state in which it is offering the securities.
- The company carries out a significant portion of its business in that state (which is defined as at least 80% of its operations).
- The company must only sell the securities to individuals residing in the state of incorporation.
The Securities and Exchange Commission amended and modernized Rule 147 in 2016.
Recent Changes Made to Rule 147
In 2016, the SECamended Rule 147 to modernize it and establish an intrastate offering exemption known as Rule 147A. The amended rule allows for offers of securities to be made available to out-of-state residents, as well as for the exemptions to apply to issuers of securities that incorporated out-of-state. Specifically, the new rules allow companies to advertise or offer the securities online (such as through crowdfunding) or through other media where they might be visible to out-of-state investors and relax the previous requirement that companies be incorporated in that state.
With changes to the rule came alterations to the requirements. To qualify for Rule 147 and Rule 147A, the company’s officers, partners, or managers must primarily direct, control, and coordinate the business’s activities in-state. Sales of securities by the company must be limited to in-state residents or persons who the company reasonably believes are in-state residents. The company also must meet at least one of the following “doing business” requirements:
- The company derived at least 80% of its consolidated gross revenues from the operation of a business or of real property located in-state, or from the rendering of services in-state.
- The company had at least 80% of its consolidated assets located in-state.
- The company intends to use and uses at least 80% of the net proceeds from the offering towards the operation of a business or of real property in-state, the purchase of real property located in-state, or the rendering of services in-state.
- A majority of the company’s employees are based in-state.
FAQs
To qualify for Rule 147 and Rule 147A, the company's officers, partners, or managers must primarily direct, control, and coordinate the business's activities in-state. Sales of securities by the company must be limited to in-state residents or persons who the company reasonably believes are in-state residents.
What is the 147 rule? ›
Provides an exemption from the registration requirements of the Securities Act of 1933 for intrastate offerings, if certain requirements are met. One requirement is that 100% of the purchasers must be from within one state.
What is the rule 147 percentage? ›
Conditions of Rule 147
To be considered doing business with the state, the issuer must meet at least one of the following conditions: At least 80% of the issuer's gross revenue must be derived from operations within the state.
What is the rule 147 for Series 63? ›
Rule 147 Intrastate Offering
The issuer must have its headquarters in that state. 80% of the issuer's income must be received in that state. 80% of the offering's proceeds must be used in that state. 80% of the issuer's assets must be located in that state.
What is the difference between 147 and 147A? ›
Issuers can now use social media and other internet-based opportunities even if the actual sales of the issuer's securities can only be made in one state. Otherwise, Rule 147A is substantially identical to Rule 147 except that it allows issuers to be incorporated out-of-state.
What is the rule 147 80 test? ›
The Rule 147 Intrastate Exemption provides that an issuer will be deemed to be doing business within a state if: (i) the Issuer derives at least 80% of its gross revenues in the past six months from that state; (ii) the Issuer had 80% of its assets located in that state in the most recent semi-annual fiscal year; (iii) ...
How soon after an investor purchases securities under rule 147 intrastate offer rule may the investor resell the security? ›
For a period of six months from the date of the sale by the issuer of a security pursuant to this section (§ 230.147), any resale of such security shall be made only to persons resident within the state or territory in which the issuer was resident, as determined pursuant to paragraph (c) of this section, at the time ...
What is Rule 145 of the Act? ›
Rule 145 clarifies section 5 of the 1933 Act. It does so by requiring registration on securities issued through a recapitalization or reorganization that needs approval by the security holders. Such securities are also not eligible for resale. To unlock this lesson you must be a Study.com Member.
Who is eligible for Rule 701? ›
The persons to whom offers and sales of securities may be made pursuant to the Rule 701 exemption include employees;6 directors; general partners; trustees, where the issuer is a business trust; officers; and consultants and advisors, provided that such consultants and advisors render bona fide services and that such ...
What is Rule 147 investopedia? ›
Rule 147 offerings, or intrastate offerings, are also exempt. Transactions with financial institutions, fiduciaries, and insurance underwriters may be considered exempt. Unsolicited orders, which are those executed through a broker at the request of his or her client, are also considered exempt.
The total answers count 147 - it's 100%, so we to get a 1% value, divide 147 by 100 to get 1.47. Next, calculate the percentage of 147: divide 147 by 1% value (1.47), and you get 100.00% - it's your percentage grade.
What is a 147 out of 166? ›
First, you need to calculate your grade in percentages. The total answers count 166 - it's 100%, so we to get a 1% value, divide 166 by 100 to get 1.66. Next, calculate the percentage of 147: divide 147 by 1% value (1.66), and you get 88.55% - it's your percentage grade.
What is rule 147? ›
Rule 147 is considered a “safe harbor” under Section 3(a)(11), providing objective standards that a company can rely on to meet the requirements of that exemption. Rule 147, as amended, has the following requirements: the company must be organized in the state where it offers and sells securities.
What is the rule 506? ›
Requirements of Rule 506
The issuer must provide the non-accredited investors with certain disclosures, such as financial statements and be available to answer questions from non-accredited investors.
What is the FINRA rule 328? ›
(a) No member organization shall consummate a sale-and-leaseback arrangement with respect to any of its assets; a sale, factoring or financing arrangement with respect to any unsecured accounts receivable; or a sale or factoring arrangement with respect to any customers' debit balances without the prior written ...
What does the rule 145 apply to? ›
SEC Rule 145 is a critically important securities regulation that applies to a limited set of circ*mstances: Transactions involving securities in companies that have gone through a merger, acquisition, or reclassification.
Do you need a license to sell private placements? ›
No Regulatory Review. Because private placements are exempt from registration at the federal and state level, no regulator has reviewed the offering to assess its risks or the background of its promoters and managers.
What is the rule 144 offering? ›
SEC Rule 144 outlines the conditions under which restricted and control securities can be sold in the public market. Rule 144 requires affiliates of an issuing company who want to sell their holdings to wait for at least a minimum holding period and comply with various reporting requirements and disclosures.
