On October 26, 2016, the Securities and Exchange Commission (the “SEC”) adopted final rules regarding intrastate and regional offerings, which largely follow the SEC’s proposed rules issued on October 30, 2015. The final rules amend Rule 147 (“Rule 147”) under the Securities Act of 1933, as amended (the “Securities Act”), to facilitate offerings relying upon recently adopted intrastate crowdfunding exemptions under state securities laws. Rule 147 provides a safe harbor for intrastate offerings exempt from registration pursuant to Section 3(a)(11) of the Securities Act (“Section 3(a)(11)”), which exempts any security offered and sold only to persons resident within a single state or territory by an issuer residing or incorporated in and doing business within such state or territory. As amended, Rule 147 will continue to function as a safe harbor under Section 3(a)(11), though Section 3(a)(11) will still be available as a potential statutory exemption in and of itself. The final rules also establish a new Securities Act exemption, designated Rule 147A, that further accommodates offers accessible to out-of-state residents and companies that are incorporated or organized out-of-state. The final rules also amend Rule 504 (“Rule 504”) of Regulation D under the Securities Act (“Regulation D”) to (1) increase the aggregate amount of securities that may be offered and sold in any twelve-month period from $1 million to $5 million and (2) disqualify certain bad actors from participating in Rule 504 offerings. In addition, the final rules repeal Rule 505 of Regulation D, which had provided a safe harbor from registration for securities offered and sold in any twelve-month period from $1 million to $5 million.

Amendments to Rule 147 -

The final rules largely follow the proposed rules, by continuing to require that sales be made only to residents of an issuer’s state or territory, redefining “intrastate offering,” and easing issuer eligibility requirements. The final rules, however, do not adopt the proposed federal limits on state exemptions. As amended, Rule 147 will continue to function as a safe harbor under Section 3(a)(11), though Section 3(a)(11) will still be available as a potential statutory exemption in and of itself. The final rules also establish a new Securities Act exemption, designated Rule 147A, which is substantially identical to Rule 147 except that it allows (1) offers to be accessible to out-of-state residents and (2) for companies to be incorporated or organized out-of-state. Amended Rule 147 and new Rule 147A will become effective 150 days after publication in the Federal Register.