What it means
A business raising money from investors is offering securities, even when the investors are neighbours or customers. Federal registration exemptions can offer a lawful alternative to a registered offering, and Rule 147 provides a defined route for a qualifying local offering rather than permission to skip compliance because the business is small.
The issuer must meet the rule's residency and business conditions, so organisation in the relevant state or territory matters alongside the principal place of business, and a mailing address or local sales office is not automatically sufficient. The doing-business test has alternative routes.
The SEC guide describes an 80% gross-revenue test, an 80% asset test, an 80% proceeds-use test, or a majority of employees based in-state. The issuer must evaluate the actual definitions and measurement periods rather than casually add unrelated percentages together.
Rule 147 limits offers and sales to in-state residents or people the issuer reasonably believes meet the relevant residency conditions, so public advertising can create an issue before anyone invests. Restricting completed subscriptions does not necessarily repair an offer made outside the permitted scope.
The purchaser must provide a written residency representation, but the rule explains that this alone is insufficient to establish a reasonable belief about residency, so subscription processing should examine relevant evidence rather than treat a checked box as the entire test. Individuals and legal entities have different residency provisions, as an individual's principal residence matters while an entity generally uses its principal place of business.
Entities organised specifically to acquire the securities have additional beneficial-owner considerations. Rule 147A is related but different, because the SEC guide explains that it allows offers accessible to out-of-state residents and can accommodate issuers organised elsewhere while retaining in-state sales and other conditions, so a nationwide website should not be assumed compatible with Rule 147.
Resales also have conditions. For six months from the issuer's sale, Rule 147 securities may be resold only within the applicable state or territory, and the required legends and disclosures help communicate that limitation, though a later resale still needs its own registration or exemption analysis.
No SEC filing fee or information filing is required solely for using these intrastate exemptions under the SEC guide, but that does not remove state registration or exemption requirements. For managers, the practical task is preserving the facts that make the route available.
Marketing, subscription screening, proceeds records and investor communications need to agree, and an informal promise to accept only local investors is not a replacement for a documented compliance process. The issuer should consult the relevant state regulator and advisers before treating the federal route as the entire project.
In practice
Real-world examples.
Example
A fictional company organised in one US state considers local fundraising. Its factory is there, but the team still checks principal place of business and a qualifying doing-business route. Being locally familiar is not the legal test.
Example
A campaign page invites investors nationwide while subscriptions are limited to one state. Counsel examines the offering route before launch. Rule 147 and Rule 147A have different offer provisions, even though both retain local-sale conditions.
Example
A purchaser signs a residency statement but supplies conflicting identification. The issuer investigates rather than accepting the statement as conclusive. The reasonable-belief requirement needs more than an unchecked assumption.
Formula
Calculation
Proceeds-use test = qualifying in-state use of proceeds / net offering proceeds x 100. This is only one of the alternative doing-business routes.
Worked example: net proceeds are $500,000 and qualifying in-state use is $425,000, so the ratio is $425,000 / $500,000 x 100 = 85%. That exceeds the 80% threshold in this simplified example.
If instead only $380,000 were to be used in-state, the ratio would be $380,000 / $500,000 x 100 = 76%, below 80%, and the issuer would need another qualifying route such as the revenue, asset or employee test. None of this establishes the other issuer, purchaser, offering or resale conditions, and actual qualifying use must be assessed under the rule.Case study
Seen in the real world.
Fictional case study: Linden Foods plans a local securities offering. Marketing prepares a nationwide social campaign, while finance intends to use the proceeds for a local facility. Counsel reviews the proposed exemption before the campaign starts.
The team selects the appropriate route, checks the issuer's business facts and creates purchaser screening records. It also explains resale limits and state-law requirements. A locally funded project becomes a documented offering process instead of an assumption that geographic purpose automatically supplies an exemption.
Watch out
Common mistakes.
- Equating a small local business with automatic eligibility. The issuer and offering conditions still apply.
- Treating a purchaser statement as sufficient residency evidence despite contradictory facts.
- Confusing Rule 147 with Rule 147A or ignoring state law and resale requirements.
Questions
People also ask.
Is this a global fundraising rule?
No. It is a specific US federal securities exemption framework.
Does it remove state requirements?
No. Applicable state registration or exemption rules remain relevant.
Can Rule 147A be treated as the same rule?
No. Its issuer-organisation and offer provisions differ, among other conditions.
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