Intrastate Offering

The intrastate offering exemption under Securities Act Rules 147 and 147A is generally available when:

1. A.The securities are registered in every state except the issuer's home stateWrong. This is the opposite of the exemption's premise, which relies on the offering staying within a single state.
2. B.The offering size is below $1,000,000 regardless of where investors are locatedWrong. The intrastate exemption turns on the in-state nexus, not simply a dollar threshold applicable nationwide.
3. C.The issuer sells only to institutional investors, regardless of locationWrong. The intrastate exemption is about geography (state residency), not investor sophistication or institutional status.
4. D.The issuer is doing business within, and offers securities only to residents of, a single stateCorrect. This in-state nexus for both the issuer and the offerees/purchasers is the core requirement of the intrastate exemption.

Why: The intrastate exemption requires the issuer to be doing business within, and the offerees/purchasers to be resident in, a single state (Rule 147A relaxes some of the older Rule 147's technical issuer-residency conditions but preserves the core in-state-offeree requirement), reflecting the theory that a purely local offering does not need federal registration.

A sponsor wants to offer program interests to the general public, including investors who are not accredited, and to advertise the offering openly. Which route is consistent with all three of those aims?

1. A.Rule 506(b), because it permits some non-accredited purchasersWrong. It permits non-accredited purchasers but forbids the general advertising the sponsor wants.
2. B.Regulation A, which allows a publicly advertised offering to non-accredited investorsCorrect. It is the only route that gives up neither aim.
3. C.Rule 506(c), because it permits general solicitationWrong. It buys advertising at the price of confining purchasers to verified accredited investors.
4. D.An intrastate offering, which imposes no limit on advertising within the stateWrong. It confines the offering to one state rather than opening it to the general public.

Why: Regulation A permits a public, generally advertised offering on an abbreviated disclosure document and does not confine purchasers to accredited investors, so it accommodates all three aims at once. Rule 506(b) permits a limited number of non-accredited purchasers but not general solicitation, and Rule 506(c) permits general solicitation but requires that every purchaser be accredited and that the issuer take reasonable steps to verify it. An intrastate offering fails on a different axis, since it confines the offering to a single state rather than the general public. What decides the question is that only one of the routes gives up neither general solicitation nor non-accredited purchasers.

An issuer wants to raise capital solely from residents of the state where it operates, relying on Rule 147. How does the rule test whether the issuer is doing business within that state?

1. A.All four of the rule doing-business tests must be satisfied at once.Wrong. The rule expressly requires that the issuer satisfy at least one of the four.
2. B.At least one of four tests must be met, three set at eighty percent and one turning on where a majority of employees are based.Correct. Satisfying any single test establishes that the issuer is doing business within the state.
3. C.The issuer need only be incorporated in the state; the doing-business tests apply to purchasers.Wrong. The doing-business tests apply to the issuer, and residence is what is tested for purchasers.
4. D.The tests are satisfied automatically if the issuer principal office is located in the state.Wrong. Principal place of business goes to residence, not to the separate doing-business condition.

Why: Rule 147 deems an issuer to be doing business within a state if it satisfies at least one of four requirements: at least eighty percent of consolidated gross revenues from operations or services within the state, at least eighty percent of consolidated assets located there, at least eighty percent of the net proceeds of the offering intended for and used within the state, or a majority of its employees based there. Only one has to be met, which is what candidates most often get wrong. Separately, the issuer must be resident in that state and every offer and sale must go to residents of it. Fail the residence condition for even one purchaser and the intrastate exemption is not available.

An issuer relying on the Rule 147 intrastate offering exemption runs a marketing campaign that includes advertisements in a national online publication with subscribers across the country. Every investor who ultimately purchases turns out to be a resident of the issuer's home state. Does the exemption survive?

1. A.Yes, because every actual purchaser was a resident of the issuer's home state.Wrong. Rule 147 is broken by out-of-state offers, not just out-of-state sales; the purchaser list does not cure a nationally distributed offer.
2. B.No, but only because the issuer failed to file a Form D notice.Wrong. Rule 147 intrastate offerings are not conditioned on a Regulation D Form D filing; that is not the defect here.
3. C.Yes, provided the publication's editorial content was produced within the issuer's home state.Wrong. Where the content was produced is irrelevant; what matters is that the readership offered the securities extends beyond the state.
4. D.No, because the exemption requires offers, not just sales, to be limited to in-state residents.Correct. A nationally circulated advertisement offers the securities to out-of-state readers, breaking the exemption at the offer stage regardless of who ultimately buys.

Why: Rule 147's intrastate exemption requires that offers, not merely sales, be limited to residents of the issuer's home state. Advertising through a nationally accessible publication offers the securities to every reader who sees it, regardless of state, which breaks the exemption at the offering stage even though every eventual purchaser happened to be in-state. The purchaser list cannot cure an offer that was not properly confined.