The Intrastate Exemption l Section 3(a)(11)
Section 3(a)(11) of the Securities Act is generally known as the “intrastate offering exemption.” The exemption is sometimes used by small issuers in going public transactions prior to filing a registration statement on Form S-1.
The intrastate exemption facilitates the financing of local business operations if certain requirements are met.
To qualify for the intrastate offering exemption, the company must be organized in the state where it is offering the securities.
Additionally, the Company must:
♦ Carry out a significant amount of its business in that state; and
♦ Make offers and sales only to residents of that state.
The intrastate offering exemption does not limit the size of the offering or the number of purchasers.
The company must determine the residence of each offeree and purchaser. If any of the securities are offered or sold to even one out-of-state person, the exemption may be lost. Without the exemption, the company could be in violation of the Securities Act.
If a purchaser resells any of the securities to a person who resides outside the state within a short period of time after the company’s offering is complete (the usual test is nine months), the entire transaction, including the original sales made within the required state, might violate the Securities Act.
The company may have difficulty relying on the intrastate exemption unless you know the persons to whom the securities are offered and the actual purchasers, and the sale is directly negotiated with them. If the company holds some of its assets outside the state, or derives a substantial portion of its revenues outside the state where it proposes to offer its securities, it may also have difficulty qualifying for the exemption.
You may follow Rule 147, a “safe harbor” rule, to ensure that you meet the requirements for the intrastate offering exemption. It is possible, however, that transactions not meeting all the requirements of Rule 147 may still qualify for the exemption.
For further information about this securities law blog post, please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real S, Suite 202 N, Boca Raton, Florida, (561) 416-8956, by email at [email protected] or visit www.securitieslawyer101.com. This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute, legal and compliance advice on any specific matter, nor does this message create an attorney-client relationship. Please note that the prior results discussed herein do not guarantee similar outcomes.
Hamilton & Associates | Securities Lawyers
Brenda Hamilton, Securities Attorney
101 Plaza Real South, Suite 202 North
Boca Raton, Florida 33432
Telephone: (561) 416-8956
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