The 2023 Roadmap: Navigating the Intrastate Offering Exemption

intrastate offering

As a “big law” trained attorney with over a decade of experience specializing in securities law, I have closely followed the trends and shifts in the sector, equipping myself with a deep understanding of the nuanced regulations that govern it. This year, in particular, has presented some interesting metrics that I believe are vital for any entrepreneur or investor to understand.

In the world of raising capital, the traditional route of registering securities with the Securities and Exchange Commission (SEC) can be a daunting and expensive process. But what if there was an alternative that allowed companies to raise capital on a more local level, without the burden of federal registration? This is where the concept of intrastate offerings comes into play. This form of funding allows businesses to secure capital from investors within their home state while diligently complying with state securities laws. Intrigued?

Reflecting back on my journey through the intricacies of securities law, I am reminded of my time as the head of the securities arbitration team at the University of Florida Levin College of Law. During those formative years, I had the privilege of delving into and exploring the nuances of securities law firsthand. The vigorous mock trials, in-depth case studies, and tireless debates helped shape my understanding and solidify my passion for this field. It was a steep yet enlightening learning curve that prepared me for the complex landscape of securities arbitration that lay ahead.

Having practiced in this space for over a decade, I can confidently say that those experiences were invaluable. They not only honed my analytical skills and legal acumen but also instilled in me a deep sense of commitment to the principles of fairness, transparency, and investor protection. As we navigate the labyrinth of intrastate offerings, I draw upon these principles and the lessons I’ve learned along the way to provide you with an insightful and practical overview of the current landscape.

In the following sections, I will be sharing my insights on key legal frameworks, latest trends, and strategic approaches in the realm of intrastate offerings. In a landscape that is constantly evolving, I remain grateful for my enduring practice in the space, as it equips me to help you better understand these complex mechanisms. Armed with this knowledge, I believe you will be better prepared to navigate the intricacies of this unique capital raising strategy.

Short Summary

  • Exploring the dynamic world of intrastate offerings, this article delves into how this capital-raising strategy provides a localised alternative to the traditional SEC registration. It allows companies to secure funding within their home state while complying with the respective state’s securities regulations.
  • However, to successfully execute an intrastate offering, companies must strictly adhere to certain criteria and stay compliant with the relevant laws and regulations. We discuss these legal frameworks, providing guidance to help navigate these complex mechanisms.
  • By using real-world examples, we illustrate the practicality and potential success of this method. Yet, it’s crucial to be mindful of potential risks and challenges such as liquidity restrictions. This comprehensive overview aims to equip you with a deeper understanding and insight to consider intrastate offerings as a potential capital-raising strategy.

Understanding Intrastate Offerings

Intrastate offerings are fundamentally state-based securities offerings, providing an opportunity for companies to raise capital without the need to register with the Securities and Exchange Commission (SEC). The caveat here is the strict adherence to respective state regulations. These offerings are geared towards facilitating financing for local businesses, serving as a cost-effective alternative to the traditional SEC registration process.

When properly executed, intrastate offerings bring several benefits. One such advantage includes the absence of restrictions on the amount of money raised, the size of the offering, or the number of purchasers – the main requirement being that these investors are residents of the state where the offering is made. This feature makes intrastate offerings an attractive prospect for businesses focused on stimulating local economic growth.

However, launching an intrastate offering is not without its complexities. It requires careful planning and a thorough understanding of several intricate legal and operational aspects. These include but are not limited to building and maintaining relationships with local investors and adhering to specific rules about advertising and solicitation.

Given the complexity of state securities laws and regulations, it is highly advisable for potential issuers to consult with experienced legal counsel prior to initiating an intrastate offering. A lawyer with expertise in securities law can provide critical guidance, ensuring compliance with local rules and minimizing potential legal risks.


Intrastate Offering Exemption

The intrastate offering exemption, known as Rule 147, is a provision under Section 3(a)(11) of the Securities Act of 1933. This federal legislation was the first to regulate the offer and sale of securities, with the objective of ensuring transparency in financial statements for informed investor decisions.

Rule 147 facilitates the financing of local business operations by providing an exemption for intrastate securities offerings. Under this provision, companies can raise funds from investors within the same state without having to register the offering with the SEC. Adopted in response to the difficulties smaller, local companies might face in complying with federal securities laws, Rule 147 seemed a more localized regulation approach.

However, to qualify for this exemption, the issuer must be a resident of, and conducting business in, the same state where all offers and sales occur. The securities, including convertible securities, must also be sold exclusively to residents of the state where the issuing company is registered. This design aligns with the broader objective of fostering economic growth within the state.


Key Components of Intrastate Offerings

To efficiently navigate an intrastate offering, it’s essential that businesses meet particular criteria. Primarily, the business in question needs to be registered or incorporated within the state where it proposes to offer and trade its securities. Furthermore, the corporate headquarters should be situated in the same state, and securities offered in this manner must be exclusively marketed and sold to the state’s residents. One of the key facets of intrastate offerings lies in the financial realm. Companies seeking to issue securities in this way must show consolidated gross revenues of under $10 million, and are required to procure the securities offered in the intrastate offering in accordance with the stipulated exemption for such offerings. Alongside these core requirements, the company must commit to fulfilling the written representation and disclosure obligations, accurately track and report the securities sold, and guarantee compliance with the local state’s securities laws.

Another vital element that necessitates attention in an intrastate offering is the stringent investor verification process. Companies must implement effective measures to verify the residency status of their investors, ensuring that the securities are indeed only sold to state residents. This process is crucial to maintain the integrity of the offering and prevent potential legal complications. Furthermore, the company must ensure that it maintains proper records and documentation of these verification processes, as it may be required to provide evidence of compliance in case of regulatory scrutiny or audits. Such diligent adherence to verification processes and record-keeping ensures a smooth and successful intrastate offering, safeguarding the company’s interests and its credibility in the eyes of both investors and regulators.

Navigating State Regulations for Intrastate Offerings

A picture of a business owner discussing state regulations with a lawyer.

Intrastate offerings fall under the jurisdiction of state laws, making it imperative for companies to thoroughly understand the distinct rules and prerequisites imposed by their respective states. The contemporary rule governing intrastate offerings, Rule 147a, delineates the standard conditions for such offerings. This rule serves as a structural guide for ensuring adherence to regulations at the state level.


Further reinforcing this principle, it’s noteworthy that the specific nuances and stipulations can vary significantly between states, due to their unique legislative landscape. Companies must dedicate time and resources to fully comprehend the implications of these state-specific deviations, ensuring their offerings align with regional policies. This comprehensive understanding will not only facilitate a smoother offering process, but also promote long-term regulatory compliance, thereby fostering a favorable business environment and potentially enhancing investor confidence. Careful navigation of these nuances can ultimately position a company for sustainable growth within its home state, enabling it to capitalize on the advantages of intrastate offerings.

While considering the nuances of intrastate offerings, it’s vital to recognize a crucial limitation. Securities purchased in such offerings cannot be resold outside the original state within a six-month period from their initial sale. This restriction may pose a potential liquidity challenge and is indeed a risk factor associated with intrastate offerings.

This caveat, designed to preserve the integrity of intrastate offerings, underscores the importance of companies considering the timing and investor base of their offerings. By nature, the restriction on interstate reselling may limit investor interest and impact the liquidity of the security in the short-term. Consequently, potential investors should be informed of this restraint to adequately manage their expectations and investment strategies. From the issuer’s perspective, it becomes essential to factor in this limitation when planning the offering, aligning it with the broader financial strategy and cash flow requirements of the company. Incorporating these considerations into their strategic approach can help companies mitigate the potential risks while maximizing the benefits of their intrastate offerings.

Rule 147a: The Modernized Intrastate Offering Rule

In October 2016, the Securities and Exchange Commission (SEC) brought into effect Rule 147a, an innovative exemption for intrastate offerings. One of the most significant changes implemented by this rule is the elimination of the ban on general solicitation. This change allows issuers greater freedom to advertise their offerings using diverse platforms, including social media channels. This modern rule seeks to align with contemporary business practices, embracing the digital age’s tools and outreach capabilities.

The advent of Rule 147a provides companies with increased flexibility in publicizing their offerings to potential investors. It does so while ensuring compliance with state regulations. This delicate balance between visibility and regulatory adherence can significantly enhance a company’s capacity to attract investors and capitalize on opportunities.

Compliance with Rule 147 and Rule 147a necessitates certain specific conditions. The firm’s key personnel – its officers, partners, or managers – must primarily direct, control, and coordinate the organization’s activities within the state of the offering. This stipulation ensures that the management maintains a tangible and substantial link to the state, reinforcing the spirit of intrastate offerings.

Lastly, under the provisions of these rules, the company must confine the sale of its securities to in-state residents, or to individuals whom it reasonably believes to be state residents. Compliance with Rule 147a is paramount for companies, as it safeguards their operations within the parameters of state regulations while enhancing their prospects for capital generation. These provisions ultimately allow businesses to tap into the local market effectively, fostering stronger community relationships and potential growth opportunities within the state.

Principal Place of Business and Residency Requirements

The principal place of business and residency requirements are critical components in intrastate offerings. The first such person’s principal residence or place of business refers to the primary location where a company conducts its operations, while the residency requirement pertains to the state or country of residence of an individual. These requirements can have a significant impact on a company’s ability to obtain capital and operate in a particular state, making it essential for companies to comply with relevant laws and regulations.

A successful example of an intrastate offering that adhered to these requirements was the offering of securities by the California-based company, Airbnb, in 2017. This offering was conducted in accordance with the relevant state laws and regulations, resulting in Airbnb raising $1 billion in capital. By following the principal place of business and residency requirements, companies like Airbnb can obtain the necessary capital while remaining compliant with state regulations following requirements.

Consolidated Gross Revenues and Acquiring Securities Offered Pursuant

An image showing the details of an intrastate offering of securities, as part of the Consolidated Gross Revenues and Acquiring Securities Offered Pursuant section.

Consolidated gross revenues refer to the total revenues of a company and its subsidiaries, while acquiring securities offered pursuant refers to the securities being offered in connection with an acquisition or merger. These financial components play a crucial role in facilitating compliance with the principal place of business and residency requirements of intrastate offerings.

However, there are potential risks and challenges associated with utilizing consolidated gross revenues and procuring securities offered pursuant to intrastate offerings such state these. These include the possibility of fraud, the requirement to adhere to state securities laws, and the necessity to monitor and report securities sold.

Companies must carefully consider these potential risks and challenges when planning their intrastate offerings to ensure a successful outcome.

How to Sell Securities in an Intrastate Offering

A picture of a business owner signing a document with the words "Written Representation and Disclosure Obligations" written on it.

Selling securities in an intrastate offering involves several critical procedures, including ascertaining the principal residence herein of each offeree and purchaser, registering the issuing company in the state, and confirming that the securities are only being offered and sold to residents of the relevant state.

By following these procedures and adhering to state securities laws, companies can successfully navigate the process of selling securities in an intrastate offering.

Written Representation and Disclosure Obligations

The written representation and disclosure obligations mandated by the federal securities laws administered by the SEC require companies to provide certain information to potential investors. These obligations ensure that investors have access to accurate and comprehensive information regarding the company and its securities offerings, thereby protecting them from deception and other potential risks associated with investing in securities.

The SEC administers the Securities Act of 1933 and the Securities Exchange Act of 1934, which require companies to register their securities offerings with the SEC and furnish investors with pertinent information regarding the offering. By adhering to these written representation and disclosure obligations, companies can safeguard investors and build trust in the investment process.

Tracking and Reporting Securities Sold

In addition to providing accurate information to investors, companies must also track and report the securities sold in an intrastate offering. The process involves broker-dealers reporting transactions in TRACE-eligible securities in accordance with SEC-approved rules. This ensures that companies adhere to state securities laws and maintain transparency with their investors.

Furthermore, broker-dealers are obligated to report capital gains or losses and cost basis information to the IRS. This reporting requirement not only keeps companies compliant with regulatory authorities, but also helps maintain investor trust throughout the investment process.

Ensuring Compliance with State Securities Laws

Ensuring compliance with state securities laws is vital for companies conducting intrastate offerings. Adherence to the rules and regulations related to securities pursuant to trading securities, including the state’s own set of securities laws commonly referred to as “Blue Sky Laws,” is necessary to ensure compliance with state securities laws. These laws are designed to protect investors from deceptive sales practices and activities.

State agencies and the SEC are responsible for enforcing state securities laws, ensuring that companies remain compliant with the relevant regulations. Companies must be diligent in researching and adhering to these laws, as potential risks and challenges associated with intrastate offerings may include the complexity of state regulations, the requirement to adhere to multiple state laws, and the possibility of fraud.

Potential Risks and Challenges of Intrastate Offerings

A picture of a business owner discussing potential risks and challenges of intrastate offerings with a lawyer.

Although intrastate offerings present an attractive alternative to traditional SEC registration, potential risks and challenges must be considered. One such risk is the requirement that the resale of securities into other states cannot occur within six months of their initial sale. This restriction can limit the liquidity of the underlying securities, and affect the overall success of the offering.

Additionally, complying with state securities laws and regulations can be challenging, particularly when navigating the complexities of multiple state laws. Companies must be diligent in researching and adhering to these laws to avoid potential pitfalls, such as fraud or non-compliance, which can have severe consequences for the company and its investors.


Intrastate offerings provide a unique opportunity for companies to raise capital within their home state without the burden of federal registration. By understanding the key components of intrastate offerings, navigating state regulations, and learning from real-life examples, companies can successfully leverage this alternative funding method. However, it is crucial for businesses to remain vigilant in complying with state securities laws and addressing potential risks and challenges associated with intrastate offerings.

The world of intrastate offerings may seem complex, but for those who are willing to navigate the intricacies of state regulations and embrace this alternative capital-raising method, the rewards can be significant. As more smaller companies will continue to explore this route, intrastate offerings may pave the way for a new era of localized investment and economic growth.

Frequently Asked Questions

What is an intrastate offering under Rule 147?

Intrastate offering under Rule 147 is a type of security offering that limits the sale and resale of securities to individuals residing in the same state. Purchasers in an intrastate securities offering must also hold their securities for at least six months before selling them.

What are intrastate offerings exempt under?

Intrastate offerings are exempt under Section 3(a)(11) of the Securities Act. This exemption allows companies to offer securities to purchasers located only in the same state where the company is incorporated.

This can provide an easier path for local businesses to access capital for their operations.

What is the rule 147 for FINRA?

Rule 147 of the Financial Industry Regulatory Authority (FINRA) allows companies to bypass SEC registration requirements for intrastate offerings by providing certain requirements have been met. To be eligible, issuers must be organized in-state, have their principal place of business in-state and satisfy at least one “doing business” requirement.

The “doing business” requirement can be satisfied by having the business organization at least one physical location in-state, having at least one employee in-state, or having at least 25% of the issuer’s total assets located in-state.

Legal Disclaimer

The information provided in this article is for general informational purposes only and should not be construed as legal or tax advice. The content presented is not intended to be a substitute for professional legal, tax, or financial advice, nor should it be relied upon as such. Readers are encouraged to consult with their own attorney, CPA, and tax advisors to obtain specific guidance and advice tailored to their individual circumstances. No responsibility is assumed for any inaccuracies or errors in the information contained herein, and John Montague and Montague Law expressly disclaim any liability for any actions taken or not taken based on the information provided in this article.

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