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SEC Adopts Rules to Facilitate Smaller Securities Offerings

SEC Updates Intrastate Crowdfunding Rules 147 & 504 and Repeals Rule 505.

On October 26, 2016, the SEC announced that it adopted final rules regarding intrastate and regional offerings that are intended to provide more options for how companies can raise money to fund their businesses, while attempting to balance those efforts with investor protections. The new rules modernize intrastate securities offerings under Rule 147, adopt a new Rule 147A to broaden the availability of the existing safe harbor for intrastate securities offerings and amend Rule 504 of Regulation D to facilitate regional securities offerings by increasing the maximum dollar amount of securities which may be sold under the exemption.

The new rules retain and modernize Rule 147 under the Securities Act as a safe harbor for intrastate offerings exempt from registration pursuant to Securities Act Section 3(a)(11). New Rule 147A would be substantially identical to Rule 147 except that it would allow offers to be accessible to out-of-state residents and for companies incorporated or organized out-of-state so long as they can demonstrate the in-state nature of their business according to various tests stated in the rule. The adoption of new Rule 147A and the amendments to Rule 147 update and modernize the existing intrastate offering framework that permits companies to raise money from investors within their state without concurrently registering the offers and sales at the federal level. The new exemption for local and regional offerings under new Rule 147A eliminates the restriction that required offers to be confined to the state in which the issuer the issuer’s principal place of business is located. Under the new rule, issuers will be permitted to engage in general solicitation and general advertising of their offerings, which may be accessed by out-of-state residents through the internet or otherwise, so long as sales are made only to residents of the state of the issuer’s principal place of business.

The SEC also raised the cap on exempt offerings in a 12-month period under Securities Act Rule 504 from $1 million to $5 million. Consistent with other rules in Regulation D, offerings under amended Rule 504 will also be subject to the “bad actor” disqualifications of Rule 506(d) to provide additional investor protection. As a result of the increase in the cap under Rule 504, the SEC repealed the infrequently used Rule 505 exemption.

Amended Rule 147 and new Rule 147A will be effective 150 days after publication in the Federal Register.  Amended Rule 504 will be effective 60 days after publication in the Federal Register. The repeal of Rule 505 will be effective 180 days after publication in the Federal Register.

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