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Rule 147 — Intrastate Offerings

A Rule 147 Offering in New York by a New York business can only be sold to New York residents
A Rule 147 Offering in New York by a New York business can only be sold to New York residents

Rule 147 permits the sale of unregistered securities (i.e. securities that are NOT registered with the SEC) provided the issuer and the purchasers are entirely within one state (e.g. New York, Texas, California…).

Candidates should remember the framework of Rule 147 to guide their analysis on the exam.  The exemption applies only to issues genuinely local in character, representing local financing by local industries, carried out through local investment.

Let’s review the specific criteria for a Rule 147 offering:

Who can issue securities?

The issuer (company selling securities) must be a resident of the state AND doing business within the state.  Therefore, the issuer must meet two tests:

Issuer Residence Test
(One must be satisfied)

Issuer Doing Business Test
must be satisfied)

  1. For corporations, limited partnerships, and trusts, the issuer is incorporated or organized in the state; OR
  2. For general partnerships, if the principal office is located in the state; OR
  3. For individuals, the principal residence is located in the state.
  1. 80% of gross revenues are from the state; AND
  2. 80% of the issuer’s assets are located within the state; AND
  3. 80% of the net proceeds raised will be used in the state; AND
  4. The principal office of the issuer is located in the state.

Who can buy securities?

Only state residents can receive offers and make purchases in a 147 offering.  Who is a state resident?

  1. Existing corporations, partnerships, or trusts whose principal office is in the state; OR
  2. Individuals with their principal residence in the state; OR
  3. Businesses that are organized for the specific purpose of acquiring Rule 147 securities provided all of the beneficial owners (e.g. partners) are residents of the state.

When can the Rule 147 securities be resold?

  1. Sales to state residents: no holding or restricted period
  2. Sales to out-of-state residents: permitted nine months after the last sale by the issuer

Knopman Notes
Remember, the nine month out-of-state resale provision clock starts only after the issuer has completed the distribution.  So, the nine month clock does not start when you purchase the securities, instead, it starts only after the issuer has completed the distribution.

Relevant Exams
Series 7, Series 10, Series 24, Series 63, Series 65, Series 66, Series 79

Dave's mission (and job: Managing Director of Course Design) is to make FINRA exam training engaging, approachable, and dare he even say, enjoyable. Having trained and coached over ten thousand students to exam success he knows how to present complex subjects in memorable and understandable ways. Prior to joining Knopman Marks in 2011, Dave practiced bankruptcy law at Weil, Gotshal & Manages and served as a law clerk in a the Southern District of New York Bankruptcy Court working on the General Motors and Lehman Brothers bankruptcies. Building on his legal expertise and training allows him to keep all our courses updated with the latest legislative and rule-making changes. Dave currently trains for the Securities Industry Essentials (SIE) exam and the Top-Off Series 6, 7, 24, 57, 63, 65, 66, 79, 86, 87, and 99 exams. He also delivers executive one-on-one training and shares his passion for learning outside of work as a ski instructor and yoga teacher. Dave graduated magna cum laude from Fordham Law School, and cum laude with a BA from the University of Pennsylvania.