[Federal Register Volume 81, Number 224 (Monday, November 21, 2016)]
[Rules and Regulations]
[Pages 83494-83554]
[FR Doc No: 2016-26348]

Vol. 81

Monday,

No. 224

November 21, 2016

Part IV

Securities and Exchange Commission

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17 CFR Parts 200, 230, 239, et al.

Exemptions To Facilitate Intrastate and Regional Securities Offerings;
Final Rule

Federal Register / Vol. 81 , No. 224 / Monday, November 21, 2016 /
Rules and Regulations

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 200, 230, 239, 240, 249, 270 and 275

[Release Nos. 33-10238; 34-79161; File No. S7-22-15]
RIN 3235-AL80

Exemptions To Facilitate Intrastate and Regional Securities
Offerings

AGENCY: Securities and Exchange Commission.

ACTION: Final rules.

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SUMMARY: We are adopting amendments to modernize Rule 147 under the
Securities Act of 1933, which provides a safe harbor for compliance
with the Section 3(a)(11) exemption from registration for intrastate
securities offerings. We are also establishing a new intrastate
offering exemption under the Securities Act, designated Rule 147A,
which will be similar to amended Rule 147, but will have no restriction
on offers and will allow issuers to be incorporated or organized
outside of the state in which the intrastate offering is conducted
provided certain conditions are met. The amendments to Rule 147 and new
Rule 147A are designed to facilitate capital formation, including
through offerings relying upon intrastate crowdfunding provisions under
state securities laws, while maintaining appropriate investor
protections and providing state securities regulators with the
flexibility to add additional investor protections they deem
appropriate for offerings within their state.
    We also are adopting amendments to Rule 504 of Regulation D under
the Securities Act to facilitate issuers' capital raising efforts and
provide additional investor protections. The amendments to Rule 504
will increase the aggregate amount of securities that may be offered
and sold in any twelve-month period from $1 million to $5 million and
disqualify certain bad actors from participation in Rule 504 offerings.
In light of these amendments to Rule 504, we are also repealing Rule
505.

DATES: Effective date: Revised 17 CFR 230.147 (Rule 147) and new 17 CFR
230.147A (Rule 147A) will be effective on April 20, 2017. The
amendments to 17 CFR 230.504 (Rule 504) and 17 CFR 200.30-1 (Rule 30-1)
will be effective on January 20, 2017. The removal of 17 CFR 230.505
(Rule 505) will be effective on May 22, 2017. All other amendments in
this rule will be effective on May 22, 2017.
    Comment date: Comments regarding the collection of information
requirements within the meaning of the Paperwork Reduction Act of 1995
should be received on or before January 20, 2017.

ADDRESSES: Persons submitting comments on the collection of information
requirements should direct the comments to the Commission by any of the
following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/final.shtml); or
     Send an email to<EMAIL_ADDRESS>Please include
File Number S7-22-15 on the subject line; or
     Use the Federal eRulemaking Portal (http://www.regulations.gov). Follow the instructions for submitting comments.

Paper Comments

     Send paper comments to Brent J. Fields, Secretary,
Securities and Exchange Commission, 100 F Street NE., Washington, DC
20549-1090.

FOR FURTHER INFORMATION CONTACT: With regard to the final rules,
Anthony G. Barone, Special Counsel, Jenny Riegel, Special Counsel, or
Ivan Griswold, Attorney-Advisor, Division of Corporation Finance, at
(202) 551-3460, and with regard to guidance on broker-dealer
registration, Timothy J. White, Senior Special Counsel, Division of
Trading and Markets, at<PHONE_NUMBER>, U.S. Securities and Exchange
Commission, 100 F Street NE., Washington, DC 20549-3628.

SUPPLEMENTARY INFORMATION: We are adopting new Rule 147A and are
adopting amendments to Rule 147 \1\ and Rule 504 \2\ of Regulation D
\3\ under the Securities Act of 1933 (the ``Securities Act'').\4\ We
are repealing Rule 505 \5\ of Regulation D.
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    \1\ 17 CFR 230.147.
    \2\ 17 CFR 230.504.
    \3\ 17 CFR 230.500 through 230.508.
    \4\ 15 U.S.C. 77a et seq.
    \5\ 17 CFR 230.505.
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Table of Contents

I. Introduction and Background
II. Amendments to Rule 147 and New Rule 147A
    A. Explanation of Amendments to Rule 147 and New Rule 147A
    1. Manner of Offering
    2. Elimination of Residence Requirement for Issuers
    B. Common Requirements of the Amendments to Rule 147 and New
Rule 147A
    1. Requirements for Issuers ``Doing Business'' In-State
    2. Reasonable Belief as to Purchaser Residency Status
    3. Residence of Entity Purchasers
    4. Limitation on Resales
    5. Integration
    6. Disclosures to Investors
    7. State Law Requirements
    C. Additional Considerations
    1. Notice Filings
    2. Intrastate Broker Dealer Exemption
    3. Section 12(g) Registration
    4. Exclusion of Investment Companies
    5. Trust Indenture Act
    6. Other Requirements
III. Amendments to Rules 504 and 505 of Regulation D
    A. Overview of Rules 504 and 505
    B. Amendments to Rule 504
    C. Repeal of Rule 505
IV. Other Matters
V. Economic Analysis
    A. Baseline
    1. Current Market Participants
    2. Alternative Methods of Raising up to $5 Million of Capital
    B. Analysis of Final Rules
    1. Broad Economic Considerations
    2. Analysis of Amendments to Existing Rule 147 and New Rule 147A
    3. Analysis of Amendments to Rule 504
    4. Analysis of Repeal of Rule 505
VI. Paperwork Reduction Act
    A. Rules 147(f)(1)(iii) and 147A(f)(1)(iii)
    B. Amendments to Rule 504 of Regulation D
VII. Final Regulatory Flexibility Act Analysis
VIII. Statutory Basis and Text of Final Amendments

I. Introduction and Background

    On October 30, 2015, we proposed amendments to Rule 147 and Rule
504 under the Securities Act to assist smaller companies with capital
formation consistent with other public policy goals, including investor
protection.\6\ In developing final rules, we considered recommendations
by the Advisory Committee on Small and Emerging Companies (``ACSEC'')
\7\ and the most recent SEC Government-Business Forum on Small Business

Capital Formation (``Small Business Forum'') \8\ and comment letters
received on the Proposing Release.\9\ Today we are amending Rule 147
and establishing a new Securities Act exemption, designated Rule 147A.
We are also amending Rule 504 of Regulation D. We believe the final
rules will facilitate capital formation by smaller companies by
increasing the utility of the current Securities Act exemptive
framework for smaller offerings while maintaining appropriate
protections for investors. The final rules complement recent efforts by
the U.S. Congress,\10\ state legislatures,\11\ and state securities
regulators \12\ to modernize existing federal and state securities laws
and regulations to assist smaller companies with capital formation. We
believe our amendment to Rule 504 to increase its aggregate offering
ceiling from $1 million to $5 million will significantly diminish the
utility of Rule 505 and we are therefore repealing that rule.
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    \6\ See SEC Rel. No. 33-9973 [80 FR 69786] (Nov. 10, 2015)
(``Proposing Release'').
    \7\ See Recommendation to the Commission by the Advisory
Committee on Small and Emerging Companies to Modernize Rule 147
under the Securities Act of 1933 (Sept. 23, 2015) (``2015 ACSEC
Recommendation''), available at http://www.sec.gov/info/smallbus/acsec/acsec-recommendation-modernize-rule-147.pdf. The Commission
established the ACSEC in 2011 with the objective of providing the
Commission with advice on its rules, regulations and policies with
regard to its mission of protecting investors, maintaining fair,
orderly and efficient markets and facilitating capital formation, as
they relate to: (1) Capital raising by emerging privately-held small
businesses (emerging companies) and publicly traded companies with
less than $250 million in public market capitalization (smaller
public companies) through securities offerings, including private
and limited offerings and initial and other public offerings; (2)
trading in the securities of emerging companies and smaller public
companies; and (3) public reporting and corporate governance
requirements of emerging companies and smaller public companies.
Advisory Committee on Small and Emerging Companies, SEC Rel. No. 33-
9258 (Sept. 12, 2011) [76 FR 57769 (Sept. 16, 2011)].
    \8\ See Final Report of the 2015 SEC Government Business Forum
on Small Business Capital Formation (April 2016) (``2015 Small
Business Forum Recommendations''), available at http://www.sec.gov/info/smallbus/gbfor34.pdf. The Small Business Investment Incentive
Act of 1980 directed the Commission to conduct an annual government-
business forum to undertake an ongoing review of the financing
problems of small businesses. 15 U.S.C. 80c-1. The Small Business
Forum has met annually since 1982 to provide a platform to highlight
perceived unnecessary impediments to small business capital
formation and address whether they can be eliminated or reduced.
Each forum seeks to develop recommendations for government and
private action to improve the environment for small business capital
formation, consistent with other public policy goals, including
investor protection. Information about the Small Business Forum is
available at http://www.sec.gov/info/smallbus/sbforum.shtml.
    \9\ The comment letters received in response to the Proposing
Release are available at http://www.sec.gov/comments/s7-22-15/s72215.shtml.
    \10\ Congress enacted the Jumpstart Our Business Startups Act of
2012 (``JOBS Act''), which was signed into law by President Obama on
April 5, 2012. Public Law 112-106, 126 Stat. 306. Pursuant to Title
II of the JOBS Act, the Commission adopted new paragraph (c) of Rule
506 of Regulation D, removing the prohibition on general
solicitation or general advertising for securities offerings relying
on Rule 506. See SEC Rel. No. 33-9415 (July 10, 2013). Pursuant to
Title IV of the JOBS Act, the Commission amended Regulation A in
order to permit issuers to raise up to $50 million annually. See SEC
Rel. No. 33-9741 (Mar. 25, 2015) (``2015 Regulation A Release'').
Pursuant to Title III of the JOBS Act, the Commission adopted rules
permitting companies to use the Internet to offer and sell
securities through crowdfunding (``Regulation Crowdfunding''). See
SEC Rel. No. 33-9974 (Oct. 30, 2015) (``Regulation Crowdfunding
Adopting Release''). Congress also enacted the Fixing America's
Surface Transportation Act of 2015 (``FAST Act''), which was signed
into law by President Obama on December 4, 2015. Public Law 114-94,
Sec 129 Stat. 1312 (2015). The FAST Act includes several amendments
to the federal securities laws, including a new exemption to Section
4 of the Securities Act for secondary sales of securities that are
purchased by an accredited investor, among other requirements
(Section 76001), and changes to facilitate initial public offerings
by emerging growth companies (Sections 71001 through 71003).
    \11\ See, e.g., Ala. Code Sec.  8-6-11 (2014); Ariz. Rev. Stat.
Ann. Sec.  44-1844 (2015); Colo. Rev. Stat. Sec.  11-51-304(6)
(2014); Fla. Stat. Sec.  571.021, 517.061, 517.0611, 517.12,
517.121, 517.161, 626.9911; Ind. Code Sec.  6-3.1-24-14 (2014); Ky.
Rev. Stat. Ann. Sec.  292.410-292.415 (2015); Me. Rev. Stat. Ann.
tit. 32, Sec.  16304, sub-Sec.  6-a (2014).
    \12\ See, e.g., D.C. Mun Regs. tit. 26-B, Sec.  250 (2014); Ga.
Comp. R. & Regs. 590-4-08 (2011); Idaho Code Ann. Sec.  30-14-203
(providing an exemption by order on a case-by-case basis); Kan.
Admin. Regs. Sec.  81-5-21 (2011).
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    Consistent with commenters' suggestions \13\ and the
recommendations of the 2015 Small Business Forum,\14\ we are retaining
and modernizing Rule 147 under the Securities Act as a safe harbor for
intrastate offerings exempt from registration pursuant to Securities
Act Section 3(a)(11). These amendments will modernize the safe harbor,
while keeping within the statutory parameters of Section 3(a)(11), so
that issuers may continue to rely upon the rule for offerings pursuant
to state law exemptions, including crowdfunding provisions, that are
conditioned upon compliance with Section 3(a)(11) and Rule 147.
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    \13\ Letter from David M. Lynn, Chair, Federal Regulation of
Securities Committee, Business Law Section, American Bar
Association, April 8, 2016 (``ABA Letter''); Letter from Christopher
D. Miller, Economic and Downtown Development Director, City of
Adrian, Michigan, January 8, 2016 (``City of Adrian Letter'');
Letter from Keith Paul Bishop, Former California Commissioner of
Corporations, December 30, 2015 (``Bishop Letter''); Letter from
Deborah L. Gunny and Cathryn S. Gawne, Co-Chairs, Corporations
Committee, Business Law Section, State Bar of California, January 8,
2016 (``California Bar Letter''); Letter from Kim Wales, CEO, Wales
Capital, and Executive Board Member, CrowdFund Intermediary
Regulatory Advocates, January 11, 2016 (``CFIRA Letter''); Letter
from Reps. Tom Emmer, Gwen Moore, Patrick McHenry, John Carney,
Scott Garrett, Denny Heck, Randy Neugebauer, Terri Sewell, Luke
Messer, Keith Ellison, Peter T. King, Robert Hurt, Robert Pittenger,
Roger Williams and Stephen Fincher, U.S. House of Representatives,
October 7, 2016 (``Congressional Letter''); Letter from Sara Hanks,
CEO, CrowdCheck, Inc., January 2, 2016 (``CrowdCheck Letter'');
Letter from Samuel S. Guzik, Securities Attorney, Guzik Associates,
January 18, 2016 (``Guzik Letter''); Letter from Brian Knight,
Associate Director, Financial Policy, and Staci Warden, Executive
Director; Center for Financial Markets, Milken Institute, January
11, 2016 (``Milken Letter''); Letter from Judith M. Shaw, President,
North American Securities Administrators Association, Inc.
(``NASAA'') and Maine Securities Administrator, January 11, 2016
(``NASAA Letter''); Letter from Youngro Lee, Esq., Co-founder/CEO,
NextSeed TX LLC, January 7, 2016 (``NextSeed Letter''); Letter from
Amy E. Pearl, Founder and Executive Director, Hatch Innovation Inc.,
January 10, 2016 (``Pearl Letter''); Letter from Joe M. Wallin,
Attorney, January 11, 2016 (``Wallin Letter''); Letter from Kristin
Wolff, January 11, 2016 (``Wolff Letter''); Letter from Howard
Orloff, CMO, ZacksInvest, November 19, 2015 (``Orloff Letter'');
Letter from Anthony J. Zeoli, Partner, Freeborn & Peters LLP,
November 5, 2016 (``Zeoli Letter''). No commenters supported the
proposed elimination of Rule 147 as a safe harbor under Section
3(a)(11).
    \14\ See 2015 Small Business Forum Recommendations.
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    Securities Act Section 3(a)(11) provides an exemption from
registration under the Securities Act for ``[a]ny security which is
part of an issue offered and sold only to persons resident within a
single State or Territory, where the issuer of such security is a
person resident and doing business within, or, if a corporation,
incorporated by and doing business within, such State or Territory.''
\15\ In 1974, the Commission adopted Rule 147 under the Securities Act
to provide objective standards for local businesses seeking to rely on
Section 3(a)(11).\16\ The Rule 147 safe harbor was intended to provide
assurances that the intrastate offering exemption would be used for the
purpose Congress intended in enacting Section 3(a)(11), namely the
local financing of companies by investors within the company's state or
territory.\17\ Rule 147 reflects this Congressional intent and
generally relies upon state regulation to effectively protect
investors.
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    \15\ 15 U.S.C. 77c(a)(11).
    \16\ See SEC Rel. No. 33-5450 (Jan. 7, 1974) [39 FR 2353 (Jan.
21, 1974)] (``Rule 147 Adopting Release''). See also SEC Rel. No.
33-5349 (Jan. 8, 1973) [38 FR 2468 (Jan. 26, 1973)] (``Rule 147
Proposing Release'').
    \17\ See Rule 147 Adopting Release. See also H.R. Rep. No. 73-
85, at 6-7 (1933), H.R. Rep. No. 73-1838, at 40-41 (1934) (Conf.
Rep.) and SEC Rel. No. 33-4434, at 4 (Dec. 6, 1961) [26 FR 11896
(Dec. 13, 1961)] (``1961 Release'').
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    Notwithstanding the importance of these limitations, due to
developments in modern business practices and communications technology
in the years since Rule 147 was adopted, we have determined that it is
necessary to update the requirements of Rule 147 to ensure its
continued utility.\18\ We are also establishing a new intrastate
offering exemption under the Securities Act, designated Rule 147A, that
will further accommodate modern business practices and communications
technology and provide an alternative means for smaller companies to
raise capital locally.
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    \18\ The Commission has not amended Rule 147 since its adoption,
other than in 2013 when the Commission adopted technical amendments
to Rules 145, 147, 152 and 155 to update references to Section 4(2)
of the Securities Act, which was renumbered as Section 4(a)(2) by
Section 201(c) of the JOBS Act, Public Law 112-106, sec. 201(c), 126
Stat. 306, 314 (Apr. 5, 2012). See SEC Rel. No. 33-9414 [78 FR
44730] (July 10, 2013). See also ABA Letter; Milken Letter.
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    We are adopting new Rule 147A pursuant to our general exemptive
authority under Section 28 of the Securities Act,\19\ and therefore,
new

Rule 147A will not be subject to the statutory limitations of Section
3(a)(11). Accordingly, Rule 147A will have no restriction on offers,
but will require that all sales be made only to residents of the
issuer's state or territory to ensure the intrastate nature of the
exemption. Rule 147A also will not require issuers to be incorporated
or organized in the same state or territory where the offering occurs
so long as issuers can demonstrate the in-state nature of their
business, which we believe will expand the number of businesses that
will be able to seek intrastate financing under Rule 147A, as compared
to amended Rule 147. Certain provisions of existing Rule 147 concerning
legends and mandatory disclosures to purchasers and prospective
purchasers will apply to offerings conducted pursuant to amended Rule
147 and Rule 147A.\20\
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    \19\ 15 U.S.C. 77z-3. For the reasons discussed throughout this
release, we find that the Rule 147A exemption being adopted today is
necessary and appropriate in the public interest and consistent with
the protection of investors.
    \20\ See Rules 147(f) and 147A(f).
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    As in current Rule 147, nothing in either amended Rule 147 or new
Rule 147A will obviate the need for compliance with any applicable
state law relating to the offer and sale of securities. Thus, states
will retain the flexibility to adopt requirements that are consistent
with their respective interests in facilitating capital formation and
protecting their resident investors in intrastate securities offerings,
including the authority to impose additional disclosure requirements
regarding offers and sales made to persons within their state or
territory, or the authority to limit the ability of certain bad actors
from relying on applicable state exemptions. In addition, both federal
and state antifraud provisions will continue to apply to offers and
sales made pursuant to amended Rule 147 and new Rule 147A.
    The staff will seek to collaborate with state regulators in
gathering information about intrastate crowdfunding offerings and,
based on the sharing of this information and other relevant inputs, the
staff will undertake to study and submit a report to the Commission, no
later than three years following the effective date of amended Rule 147
and new Rule 147A, on capital formation and investor protection in
offerings under these rules. The report will include, but not be
limited to, a review of information about:
    (1) The use of amended Rule 147 and new Rule 147A;
    (2) repeat use by the same issuers of amended Rule 147 or new Rule
147A;
    (3) the use by issuers of alternative federal offering exemptions
concurrently or close in time to an offer or sale under amended Rule
147 or new Rule 147A;
    (4) fraud associated with, or issuer non-compliance with provisions
of, amended Rule 147 or new Rule 147A;
    (5) the role of intrastate broker-dealers and other intermediaries
in offerings conducted pursuant to amended Rule 147 or new Rule 147A;
and
    (6) the application of state bad actor disqualification provisions
in offerings conducted pursuant to amended Rule 147 or new Rule 147A to
inform whether the Commission should consider including bad actor
disqualification provisions in amended Rule 147 and new Rule 147A.
    We also are amending Rule 504 of Regulation D under the Securities
Act to increase the aggregate amount of securities that may be offered
and sold pursuant to Rule 504 in any twelve-month period from $1
million to $5 million and to disqualify certain bad actors from
participation in Rule 504 offerings. The higher offering ceiling amount
will promote capital formation by increasing the flexibility of state
securities regulators to implement coordinated review programs to
facilitate regional offerings.\21\ The bad actor disqualification
provisions will provide for greater consistency across Regulation D. We
believe these amendments to Rule 504 will significantly diminish the
utility of Rule 505, which historically has been little utilized in
comparison to Rule 506 of Regulation D.\22\ We, therefore, are
repealing Rule 505.
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    \21\ The state registration of securities offerings under
coordinated review programs is an example of the efforts being
undertaken by states to streamline the state registration process
for issuers seeking to undertake multi-state registrations. These
programs establish uniform review standards and are designed to
expedite the registration process, thereby potentially saving
issuers time and money. Participation in such programs is voluntary.
The states have created coordinated review protocols for equity,
small company and franchise offerings; direct participation program
securities; and for certain offerings of securities pursuant to
Regulation A. More information on coordinated review programs is
available at http://www.nasaa.org/industry-resources/corporation-finance/coordinated-review/.
    \22\ For the period 2009 through 2015, 132,091 Forms D were
filed. Of these Forms D, 3,758 reported an offering made in reliance
upon Rule 505 of Regulation D, representing approximately 3% of all
offerings made in reliance upon Regulation D and 5% of all
Regulation D offerings raising less than $5 million. During this
time period, 1,548 Forms D reported reliance only on Rule 505, and
2,210 Forms D reported reliance on Rule 505 and another Regulation D
exemption. By contrast, for the period 2009 through 2015, 5,532
filings reported an offering made in reliance upon Rule 504,
representing approximately 4% of all offerings made in reliance upon
Regulation D and 13% of all Regulation D offerings raising less than
$1 million. During this time period, 4,308 Forms D reported reliance
only on Rule 504, and 1,224 Forms D reported reliance on Rule 504
and another Regulation D exemption. All other Form D filings during
this period reported an offering made in reliance on Rule 506.
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II. Amendments to Rule 147 and New Rule 147A

A. Explanation of Amendments to Rule 147 and New Rule 147A

    Numerous commenters \23\ and the 2015 Small Business Forum \24\
recommended retaining Rule 147 as a safe harbor under Section 3(a)(11).
Many of these commenters also recommended adopting a substantially
similar new exemption pursuant to the Commission's general exemptive
authority under Section 28 as an alternative to the Section 3(a)(11)
exemption and safe harbor for companies that wish to conduct intrastate
offerings under slightly broader conditions than contemplated by
Section 3(a)(11). After considering the comments, we are amending Rule
147 to modernize the rule to incorporate most of our proposed
amendments, except for the two proposed amendments that do not fit
within the statutory limits of Section 3(a)(11)--allowing issuers to
make offers accessible to out-of-state residents and to be incorporated
out-of-state. These two provisions are the distinguishing features of
the new Rule 147A exemption that we are establishing pursuant to our
general exemptive authority under Section 28. Aside from these two
provisions, the remaining provisions of new Rule 147A are substantively
the same as the provisions of amended Rule 147.
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    \23\ ABA Letter; City of Adrian Letter; Bishop Letter;
California Bar Letter; CFIRA Letter; Congressional Letter;
CrowdCheck Letter; Guzik Letter; Milken Letter; NASAA Letter;
NextSeed Letter; Pearl Letter; Wallin Letter; Wolff Letter; Orloff
Letter; Zeoli Letter. No commenters supported the proposed
elimination of Rule 147 as a safe harbor under Section 3(a)(11).
    \24\ 2015 Small Business Forum Recommendations.
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1. Manner of Offering
a. Proposed Amendments
    Rule 147, as proposed, would have required issuers to limit sales
to in-state residents, but would no longer have limited offers by the
issuer to in-state residents.\25\ Accordingly, under our proposal,
amended Rule 147 would have permitted issuers to engage in general
solicitation and general advertising that could reach out-of-state
residents in order to locate potential in-state investors using any
form of mass media, including unrestricted, publicly-available Internet
Web sites, to advertise their offerings, so long as all sales of

securities so offered were made to residents of the state or territory
in which the issuer has its principal place of business. In the
Proposing Release, the Commission noted that market participants and
commenters have indicated that the combined effect of the statutory
limitation on offers in Section 3(a)(11) and the prescriptive threshold
requirements of Rule 147 unduly limits the availability of the
exemption for local companies that would otherwise conduct intrastate
offerings.\26\
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    \25\ See proposed Rule 147(d).
    \26\ See Proposing Release at text accompanying note 18.
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    Given that proposed Rule 147 would have allowed offers to be made
to or be accessible by out-of-state residents, including advertising
offers on publicly-available Internet Web sites, the proposal would
have required an issuer to include a prominent disclosure on all
offering materials used in connection with a Rule 147 offering stating
that sales will be made only to residents of the same state or
territory as the issuer.\27\ This proposed disclosure requirement was
intended to advise investors who are not residents of the state in
which sales are being made that the intrastate offering would be
unavailable to them.
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    \27\ See proposed Rule 147(f)(3).
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    As proposed, Rule 147 would no longer have remained a safe harbor
for conducting a valid intrastate exempt offering under Section
3(a)(11). An issuer that attempted to comply with Rule 147, as proposed
to be amended, but failed to do so, could rely on any other available
exemption. Failure to satisfy the requirements of Rule 147, as proposed
to be amended, however, would also have likely resulted in a failure to
satisfy the statutory requirements for the intrastate offering
exemption under Section 3(a)(11), since the requirements of Section
3(a)(11) would be more restrictive than under Rule 147, as proposed to
be amended.
b. Comments on Proposed Amendments
    All commenters that addressed the issue expressed support for
eliminating the limitation on offers to in-state residents while
continuing to require that all sales be made to in-state residents.\28\
Many of these commenters also expressed support for retaining existing
Rule 147 as a safe harbor under Section 3(a)(11), in order to allow
issuers to take advantage of existing state crowdfunding
provisions.\29\ As explained by one commenter, if the Commission
eliminated the Rule 147 safe harbor, state legislative and/or
rulemaking action would be required, since almost all of the state
crowdfunding exemptions are premised on the offering qualifying under
Section 3(a)(11) and its Rule 147 safe harbor.\30\ The commenter noted
that eliminating the Rule 147 safe harbor would leave these state
crowdfunding exemptions unavailable until states modified their
exemptions to accommodate the removal of Rule 147 as a safe harbor to
Section 3(a)(11).\31\ In order to avoid this problem, some commenters
recommended that the Commission interpret Section 3(a)(11) and Rule 147
to allow for offers to be viewed by out-of-state residents.\32\ A few
of these commenters stated that Section 3(a)(11) should be interpreted
to allow for offers to be viewed by out-of-state residents, so long as
such offers indicate that they are being made to residents of a single
state.\33\
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    \28\ ABA Letter; NASAA Letter; Letter from Kurt N. Schacht, CFA,
Managing Director, Standards and Advocacy, and Linda L. Rittenhouse,
Director, Capital Markets Policy, CFA Institute, January 11, 2016
(``CFA Letter''); CrowdCheck Letter; CFIRA Letter; Guzik Letter;
NextSeed Letter; Milken Letter; Zeoli Letter; Bishop Letter; Wolff
Letter; City of Adrian Letter; Pearl Letter; Finn Terdal, Technology
Coordinator, Hatch Innovation, January 11, 2016 (``Terdal Letter'');
Letter from Simon R. Love, Managing Director, Hatch Lab, January 11,
2016 (``Love Letter''); Letter from John MacDougall, Founder & CEO,
MacDougall & Sons Bat Co. Inc., January 10, 2016 (``MacDougall
Letter''); Letter from Erin Ely, January 10, 2016 (``Ely Letter'');
Letter from Jim Newcomer, Ph.D., 4mation Advisers, January 10, 2016
(``Newcomer Letter''); Brandon P. Romano, Content Director, Brelion,
LLC, January 6, 2016 (``Brelion Letter''); Letter from Sean
Shepherd, CrwdCorp LLC, December 30, 2015 (``CrwdCorp Letter''). See
also Congressional Letter (expressing general support for the
proposed amendments to Rule 147).
    \29\ See ABA Letter; CFIRA Letter; Congressional Letter;
CrowdCheck Letter; NASAA Letter; California Bar Letter; Guzik
Letter; Milken Letter; NextSeed Letter; Zeoli Letter; Bishop Letter;
Wolff Letter; Pearl Letter; City of Adrian Letter; Orloff Letter;
Wallin Letter.
    \30\ NASAA Letter. According to the NASAA Letter, as of January
2016, of the 29 states plus the District of Columbia that adopted or
were finalizing rulemaking implementing crowdfunding exemptions, 29
were premised on the offering qualifying under Section 3(a)(11) and
its Rule 147 safe harbor: Alabama, Arizona, Colorado, District of
Columbia, Georgia, Florida, Idaho, Illinois, Indiana, Iowa, Kansas,
Kentucky, Maine, Maryland, Massachusetts, Michigan, Minnesota,
Mississippi, Montana, Nebraska, New Jersey, New Mexico, Oregon,
South Carolina, Tennessee, Texas, Vermont, Virginia, Washington, and
Wisconsin. As of January 2016, the exemptions were effective in 27
of the 30 jurisdictions: Minnesota and New Jersey were finalizing
rulemaking, and New Mexico was working on draft regulations. Of the
states with state crowdfunding exemptions, only Iowa and Vermont do
not explicitly reference Rule 147, and Maine relies on Rule 504
rather than Section 3(a)(11).
    \31\ Id.
    \32\ ABA Letter; Guzik Letter; Zeoli Letter; Milken Letter;
Pearl Letter.
    \33\ ABA Letter; Guzik Letter; Zeoli Letter.
---------------------------------------------------------------------------

    One commenter also noted that issuers currently rely on Section
3(a)(11) and Rule 147 to conduct forms of intrastate offerings other
than pursuant to state crowdfunding provisions.\34\ In the view of this
commenter, removal of Rule 147 as a safe harbor under Section 3(a)(11)
would also present problems for these exempt offerings, thereby
severely restricting other local capital raising options.\35\
---------------------------------------------------------------------------

    \34\ NASAA Letter. For example, issuers may rely upon Section
3(a)(11) and Rule 147 for offerings registered under state
securities laws, or pursuant to exemptions from state registration
other than state crowdfunding provisions.
    \35\ Id.
---------------------------------------------------------------------------

    Although commenters overwhelmingly supported retaining existing
Rule 147 as a safe harbor to Section 3(a)(11), many commenters also
supported adopting a substantially similar new exemption under the
Commission's general exemptive authority under Section 28 for companies
that conduct an intrastate offering but may not qualify for the Section
3(a)(11) exemption.\36\ Similarly, the 2015 Small Business Forum
recommended that the Commission take a ``side-by-side'' approach in
introducing a new Rule 147--as it did with Rule 506 and Regulation A
\37\--keeping old Rule 147 in place as a safe harbor under Section
3(a)(11) (but amending it to the extent permissible given the statutory
limitations of Section 3(a)(11)) while also adopting a new
exemption.\38\ Several commenters stated that establishing a new
exemption under Section 28, in addition to retaining existing Rule 147,
would afford the states time to amend their existing state crowdfunding
provisions, as well as to adopt new state crowdfunding provisions.\39\
One commenter supported leaving the existing Rule 147 as a safe harbor
to Section 3(a)(11) while adopting the proposed new exemption as new
Rule 505.\40\
---------------------------------------------------------------------------

    \36\ ABA Letter; City of Adrian Letter; Bishop Letter;
California Bar Letter; CFIRA Letter; Congressional Letter;
CrowdCheck Letter; Guzik Letter; Milken Letter; NASAA Letter;
NextSeed Letter; Pearl Letter; Wallin Letter; Orloff Letter; Zeoli
Letter.
    \37\ For example, pursuant to Title II of the JOBS Act, the
Commission adopted the Rule 506(c) exemption that permits an issuer
to engage in general solicitation under certain circumstances while
retaining Rule 506(b) as a safe harbor, which prohibits general
solicitation. Pursuant to Title IV of the JOBS Act, the Commission
also adopted Tier 1 and Tier 2 categories under Regulation A.
    \38\ 2015 Small Business Forum Recommendations.
    \39\ See, e.g., Pearl Letter; Orloff Letter.
    \40\ Orloff Letter.
---------------------------------------------------------------------------

    Several commenters supported our proposal to require prominent
disclosure on all offering materials used in connection with a Rule 147
offering stating that sales will be made only to residents of the same
state or territory as

the issuer.\41\ One commenter supported the proposed prominent
disclosure requirement, but only to the extent it is required on all
general solicitation and advertising materials.\42\ Two other
commenters noted that appropriate accommodations should be made to
permit use of space-constrained social media communications such as
Twitter.\43\ Two commenters noted that the Commission's efforts to
modernize these requirements should preserve state authority over
intrastate offerings, including the authority to impose additional
disclosure requirements.\44\
---------------------------------------------------------------------------

    \41\ CFA Letter; CFIRA Letter; CrowdCheck Letter; NASAA Letter.
    \42\ NASAA Letter.
    \43\ CFIRA Letter; CrowdCheck Letter.
    \44\ Congressional Letter; NASAA Letter.
---------------------------------------------------------------------------

c. Final Rules
    After considering these comments and the recommendations of the
2015 Small Business Forum, we are adopting new Rule 147A to allow
issuers to make offers accessible to out-of-state residents, so long as
sales are limited to in-state residents. We are also retaining amended
Rule 147 as a safe harbor under Section 3(a)(11) to preserve the
continued availability of existing state exemptive provisions that are
specifically conditioned upon issuer reliance on Section 3(a)(11) and
Rule 147. Issuers relying on amended Rule 147 as a safe harbor under
Section 3(a)(11) must continue to limit all offers and sales to in-
state residents.\45\
---------------------------------------------------------------------------

    \45\ See Rule 147(b).
---------------------------------------------------------------------------

    We believe offers made over the Internet that can be viewed by a
significant number of out-of-state residents are not consistent with
Section 3(a)(11) and Rule 147, even if such offers include prominent
disclosure stating that sales will be made only to residents of the
same state or territory as the issuer.\46\ When Section 3(a)(11) was
enacted in 1934, Congress noted, among other things, that ``a person
who comes within the purpose of the exemption, but happens to use a
newspaper for the circulation of his advertising literature, which
newspaper is transmitted in interstate commerce, does not thereby lose
the benefits of the exemption.'' \47\ Further, in 1937 the Commission
released guidance on the nature of the Section 3(a)(11) exemption in
the form of a letter from the Commission's General Counsel.\48\ The
letter stated that securities exempt from registration pursuant to
Section 3(a)(11) ``may be made the subject of general newspaper
advertisement (provided the advertisement is appropriately limited to
indicate that offers to purchase are solicited only from, and sales
will be made only to, residents of the particular state involved).''
\49\ In its 1961 Release, the Commission explained that in order ``[t]o
give effect to the fundamental purpose of the exemption, it is
necessary that the entire issue of securities shall be offered and sold
to, and come to rest only in the hands of residents within the state.
If any part of the issue is offered or sold to a non-resident, the
exemption is unavailable not only for the securities so sold, but for
all securities forming a part of the issue, including those sold to
residents.'' \50\ We do not read the legislative history for Section
3(a)(11) and the prior Commission statements as envisioning widespread
out-of-state offers, but rather as recognition that some media of
communication, such as a local newspaper or periodical, could only be
imperfectly targeted to residents of a particular state. The Internet,
however, is not similarly targeted to residents of a particular state,
making it difficult for issuers to keep the distribution of such offers
local in nature.
---------------------------------------------------------------------------

    \46\ Cf. ABA Letter; Guzik Letter; Zeoli Letter; Milken Letter;
Pearl Letter.
    \47\ See H.R. Rep. No. 73-1838, at 40-41 (1934) (Conf. Rep.).
Section 3(a)(11) initially was enacted as Securities Act Section
5(c). When Congress enacted the Securities Exchange Act of 1934, it
also amended the Securities Act, including revising and
redesignating Section 5(c) as Section 3(a)(11).
    \48\ See SEC Rel. No. 33-1459 (May 29, 1937) [11 FR 10958 (Sept.
27, 1946)] (``1937 Letter of General Counsel'').
    \49\ Id.
    \50\ 1961 Release; see also 1937 Letter of General Counsel
(stating that Section 3(a)(11) is ``limited to cases in which the
entire issue of securities is offered and sold exclusively to
residents of the state in question'').
---------------------------------------------------------------------------

    Given the foregoing, we believe that the most appropriate means to
permit the offer and sale of securities on Internet Web sites, or using
any other form of mass media likely to reach significant numbers of
out-of-state residents, is to adopt a new intrastate offering exemption
pursuant to the Commission's general exemptive authority under Section
28. Accordingly, new Rule 147A will require issuers to limit sales to
in-state residents, but will not limit offers by the issuer to in-state
residents. New Rule 147A thereby will permit issuers to engage in
general solicitation and general advertising of their offerings, using
any form of mass media, including unrestricted, publicly-available
Internet Web sites, so long as sales of securities so offered are made
only to residents of the state or territory in which the issuer is
resident.
    Consistent with the proposal, both Rule 147A and amended Rule 147
will require issuers to include prominent disclosure with all offering
materials stating that sales will be made only to residents of the same
state or territory as the issuer.\51\ We believe this disclosure will
help alert potential investors that only residents of the state in
which the issuer is located are eligible to participate in the
offering. Nothing in this disclosure requirement, however, will prevent
state authorities from imposing additional disclosure requirements or
other requirements on offers or sales made to persons within their
states.
---------------------------------------------------------------------------

    \51\ See Rules 147(f)(3) and 147A(f)(3).
---------------------------------------------------------------------------

    Two commenters noted that appropriate accommodations should be made
to permit use of space-constrained social media communications such as
Twitter.\52\ To accommodate space-constrained social media
communication, when offering materials are distributed through a
communications medium that has technological limitations on the number
of characters or amount of text that may be included in the
communication and including the required statements in their entirety,
together with the other information, would cause the communication to
exceed the limit on the number of characters or amount of text, an
issuer could satisfy the disclosure requirement by including an active
hyperlink to the required disclosure that otherwise would be required
by the rules.The communication should prominently convey, through
introductory language, that required information is provided through
the hyperlink. We believe this guidance will accommodate advancements
in social media, while still providing potential investors with the
disclosure required by the rules. Where an electronic communication is
capable of including the entirety of the required disclosure, along
with the other information, without exceeding the applicable limit on
the number of characters or amount of text, the use of a hyperlink to
the required statements should not be used.
---------------------------------------------------------------------------

    \52\ CFIRA Letter; CrowdCheck Letter.
---------------------------------------------------------------------------

2. Elimination of Residence Requirement for Issuers
a. Proposed Amendments
    For corporations, limited partnerships, trusts, or other forms of
business organizations, we proposed to eliminate the current
requirement in Rule 147 that limits the availability of the rule to
issuers incorporated or

organized in the state in which an offering takes place. Our proposed
amendments would have expanded the universe of eligible issuers by
eliminating the current ``residence'' requirement, while continuing to
require that an issuer have a sufficient in-state presence determined
by the location of the issuer's principal place of business.\53\
---------------------------------------------------------------------------

    \53\ See proposed Rule 147(c)(1). See also discussion on
principal place of business in Section II.B.1 below, and the related
discussion of the proposed requirement that an issuer satisfy at
least one of four threshold requirements in order to help ensure the
in-state nature of its business.
---------------------------------------------------------------------------

    The proposed amendments also would have replaced the current rule's
``principal office'' \54\ requirements for an issuer with a ``principal
place of business'' requirement.\55\ The proposed rule defined the term
``principal place of business'' to mean the location from which the
officers, partners, or managers of the issuer primarily direct, control
and coordinate the activities of the issuer.\56\ As noted in the
Proposing Release, an issuer would have been able to have a ``principal
place of business'' within only one state or territory and would have
therefore been able to conduct an offering pursuant to amended Rule 147
only within that particular state or territory. We also proposed to
restrict the ability of an issuer that has changed its principal place
of business from conducting an intrastate offering in a different state
for a period of nine months from the date of the last sale in the prior
state,\57\ which was consistent with the duration of the resale
limitation period specified in proposed Rule 147(e).\58\
---------------------------------------------------------------------------

    \54\ See 17 CFR 230.147(c)(1)(ii) and 17 CFR 230.147(c)(2)(iv).
    \55\ See proposed Rule 147(c)(1).
    \56\ See proposed Rule 147(c)(1).
    \57\ See Note 1 to proposed Rule 147(c)(1).
    \58\ See proposed Rule 147(e) (proposing to limit resales of a
given security purchased in an offering pursuant to Rule 147 to out-
of-state residents for a nine-month period from the date such
security is sold by the issuer).
---------------------------------------------------------------------------

b. Comments on Proposed Amendments
    Commenters were divided on the proposal to eliminate the
requirement in Rule 147 that entities be incorporated or organized
under the laws of the state or territory in which the offering takes
place. Several commenters supported eliminating this requirement and
stated that the jurisdiction of entity formation should not affect the
ability of an issuer to be considered resident for purposes of an
intrastate offering and that there are valid business reasons for
incorporating or organizing in states, such as Delaware, which do not
detract from an issuer's connection to the state in which its principal
place of business is located.\59\ Other commenters opposed eliminating
the requirement that entities be incorporated or organized under the
laws of the state in which the offering takes place,\60\ and some of
these commenters stated that the intrastate exemption should promote
state and local economic development goals in addition to capital
formation--goals that, in their view, would be curtailed in the absence
of an in-state organization requirement.\61\
---------------------------------------------------------------------------

    \59\ See Bishop Letter (``The application of state securities
laws is not dependent upon the state of incorporation or
organization of the issuer. Rather, the application of these laws
depends upon whether an offer or sale is being made within the
state.''); CFIRA Letter; CFA Letter (the proposed approach
``continues the issuer-state connection through the actual business
activities and employment aspects that accompany a principal place
of business and recognizes the lack of connection between state of
incorporation and actual business activities.''); CrowdCheck Letter;
NASAA Letter; NextSeed Letter.
    \60\ Love Letter; MacDougall Letter; Newcomer Letter; Pearl
Letter; Wolff Letter.
    \61\ Love Letter (``If the company is incorporated in the state
where sales occur, it is another way to encourage local funds to be
retained locally''); MacDougall Letter (stating that incorporating
out of state to avoid state taxes ``goes against the `spirit' of the
law and sends the wrong message''); Pearl Letter (``intrastate laws
are focused on state economic development in addition to capital
formation for entrepreneurs and financial return for investors, and
therefore the retention of capital within the state is a necessary
component of the successful spread of benefits''); Wolff Letter
(stating that local investing confers benefits that extend beyond
financial return and seeks to encourage the spread of such social,
economic, and other benefits while lifting the restriction on state
incorporation entirely changes the nature of the intrastate
crowdfunding).
---------------------------------------------------------------------------

    Commenters also were divided on replacing the current in-state
organization requirement in Rule 147(c)(1) with a principal place of
business requirement. While two commenters viewed the principal place
of business standard along with a ``doing business'' test as
sufficiently demonstrating the in-state nature of an issuer's
business,\62\ two other commenters opposed the proposed principal place
of business requirement.\63\ One commenter noted that the
jurisdictional reach of state securities laws is independent of whether
an issuer is conducting any business within the state and indicated
that a state's jurisdiction is established by the offer or sale of a
security within the state.\64\ Another commenter stated that the
principal place of business requirement is ``anti-competitive in nature
and disruptive in spurring economic growth for small businesses.'' \65\
---------------------------------------------------------------------------

    \62\ NASAA Letter; NextSeed Letter.
    \63\ Bishop Letter; Letter from David L. Sjursen, CEO & Founder,
Exante Regulatory Compliance Consultants Inc., December 2, 2015
(``Exante Letter'').
    \64\ Bishop Letter (``[T]he Commission's proposed `presence'
requirements would not augment California's ability to enforce its
securities laws for the protection of resident investors as assumed
by the Commission. If a state believes that its existing
qualification or exemption requirements inadequately protect
offerees and purchasers, it can amend those requirements. . . . [I]t
is far more logical to require only that the issuer be organized in
the state or territory or qualified to transact intrastate business
in the state or territory'').
    \65\ Exante Letter.USGPO Galley End:?>
---------------------------------------------------------------------------

    Several commenters supported the proposed nine-month waiting period
until the offering comes to rest, consistent with the requirements of
proposed Rule 147(e), before an issuer may change its principal place
of business to another state or territory and make a subsequent
offering of securities in that new state or territory in reliance on
proposed Rule 147.\66\ No commenters opposed the proposed waiting
period.
---------------------------------------------------------------------------

    \66\ CFIRA Letter; CrowdCheck Letter; NASAA Letter.
---------------------------------------------------------------------------

c. Final Rules
    We are adopting changes to the residency requirements for issuers
conducting exempt intrastate offerings largely as proposed, but with
certain modifications to reflect our decision to retain existing Rule
147 as a safe harbor to the Section 3(a)(11) exemption. Since we are
retaining Rule 147 as a safe harbor and since Section 3(a)(11)
expressly requires that if the issuer is a corporation that it be
``incorporated by and doing business within, such state or territory,''
we are not eliminating the ``residence'' requirement in current
paragraph (c)(1) of Rule 147, as proposed. Instead, we are retaining
the requirement that an issuer shall be deemed a resident of a state or
territory in which it is incorporated or organized for issuers that are
incorporated or organized under state or territorial law, such as
corporations, limited partnerships and trusts.
    In addition, for consistency between the provisions of Rule 147 and
new Rule 147A,\67\ throughout amended Rule 147, we are replacing the
``principal office'' requirement with the proposed ``principal place of
business'' requirement.\68\ Instead of ``principal

office,'' amended Rule 147 and new Rule 147A will refer to the term
``principal place of business'' to mean the location from which the
officers, partners, or managers of the issuer primarily direct, control
and coordinate the activities of the issuer.\69\ We do not expect this
change will significantly alter the scope of existing Rule 147 as we
believe ``principal place of business'' is conceptually similar to
principal office location.
---------------------------------------------------------------------------

    \67\ See Rules 147(c)(1), 147(d)(1), 147A(c)(1) and 147A(d)(1).
The principal place of business definition is consistent with the
use of that term in Exchange Act Rule 3a71-3, 17 CFR 240.3a71-3, for
cross-border security based swap dealing activity, and the use of
the term ``principal office and place of business'' in Investment
Advisers Act Rule 203A-3(c), 17 CFR 275.203A-3(c).
    \68\ For example, as proposed, we are amending paragraph (d)(1)
of Rule 147 to replace the ``principal office'' requirement with
``principal place of business.'' See also Section II.B.3 below
discussing the use of the ``principal place of business'' standard
for the residence of entity purchasers.
    \69\ See Rules 147(c)(1), 147(d)(1), 147A(c)(1) and 147A(d)(1).
---------------------------------------------------------------------------

    Under amended Rule 147, issuers that are incorporated or organized
under state or territorial law will be deemed a ``resident'' of a
particular state or territory in which they are both incorporated or
organized and have their ``principal place of business.'' \70\
Specifically, the ``principal office'' requirement contained in current
Rule 147(c)(2)(iv) \71\ will be updated and replaced with the
``principal place of business'' requirement in amended Rule
147(c)(1)(i). Similarly, issuers that are general partnerships, or in
the form of another business organization not organized under any state
or territorial law, shall be deemed to be a ``resident'' of the state
or territory in which they have their ``principal place of business.''
\72\
---------------------------------------------------------------------------

    \70\ See 17 CFR 230.147(c)(1)(i).
    \71\ See 17 CFR 230.147(c)(1)(iv).
    \72\ See 17 CFR 230.147(c)(1)(ii).
---------------------------------------------------------------------------

    Consistent with the proposal, new Rule 147A(c)(1) will rely solely
on the principal place of business requirement to determine the state
or territory in which the issuer shall be deemed a ``resident,'' not
only for corporate issuers, but for all issuers, including issuers that
are not organized under any state or territorial law, such as general
partnerships.\73\ Although commenters were divided on whether to retain
the requirement that entities be incorporated or organized under the
laws of the state in which the offering takes place, we continue to
believe that using a principal place of business requirement in lieu of
an in-state formation requirement to establish the issuer's residency
is more consistent with modern business practices in which issuers are
permitted to incorporate or organize in states other than the state or
territory of their principal place of business, for example, to take
advantage of well-established bodies of corporate or partnership
law.\74\ We continue to believe that, outside the statutory
requirements of Section 3(a)(11), the jurisdiction of entity formation
should not affect the ability of an issuer to be considered
``resident'' for purposes of an intrastate offering exemption at the
federal level. While we recognize that some commenters supported
retaining an in-state formation requirement as a means of ensuring that
the economic and social benefits of the offering remain within the
state, the objectives of our rulemaking in this area are more broadly
focused on facilitating capital formation by small businesses.\75\ We
believe that retaining an in-state formation requirement in new Rule
147A would be unnecessarily restrictive and limit the usefulness of the
exemption, potentially to the detriment of local economic development.
---------------------------------------------------------------------------

    \73\ See note 56 above.
    \74\ For example, data provided by issuers in Form D filings
with the Commission indicates that approximately 37% of Rule 504
offerings and 39% of Rule 505 offerings indicated in their Form D
filings that they had different states of incorporation and
principal places of business. Form D data also indicates that
approximately 65% of all Rule 506 offerings initiated during 2009-
2015 reported different states of incorporation and operations. See
discussion in Section V.B.2.b.ii below.
    \75\ See e.g., Rule 147 Adopting Release at text accompanying
note 2.
---------------------------------------------------------------------------

    We are, however, retaining the proposed principal place of business
requirement, despite the views of several commenters that such a
requirement is unnecessary or inappropriate.\76\ Although, as noted by
one commenter, the jurisdictional reach of state securities laws is
independent of whether an issuer is conducting any business within the
state since a state's jurisdiction is established by the offer or sale
of a security within the state,\77\ we believe that states will have a
particular interest in regulating intrastate offerings for the
protection of investors where there is a meaningful nexus between the
state, issuers and investors.
---------------------------------------------------------------------------

    \76\ Bishop Letter; Exante Letter.
    \77\ Bishop Letter.
---------------------------------------------------------------------------

    To ensure an appropriate connection between the state, issuers and
investors, amended Rule 147(d) and Rule 147A(d) will require an issuer
to be a resident of the same state where purchasers are resident or
where the issuer reasonably believes they are resident.\78\ Viewed
together, paragraphs (c) and (d) of each of Rules 147 and 147A help to
ensure the local intrastate character of the offering by requiring that
both issuers and purchasers reside and have their principal place of
business (for purchasers, the principal place of business requirement
only applies to purchasers who are legal entities) \79\ in the same
state or territory where the offering takes place.
---------------------------------------------------------------------------

    \78\ See Rule 147A(c)(1).
    \79\ Under both amended Rule 147(d)(2) and Rule 147A(d)(2), the
residence of an individual (natural person) is determined by the
state or territory in which his or her principal residence is
located at the time of the offer and sale to the individual.
---------------------------------------------------------------------------

    For situations where an issuer changes its principal place of
business to another state after conducting an intrastate offering in
reliance on Rule 147 or Rule 147A, we are adopting provisions in both
rules that limit the ability of an issuer to conduct a subsequent
intrastate offering pursuant to Rule 147 or Rule 147A until such time
as securities sold in reliance on the exemption in the prior state have
come to rest in that state.\80\ This is consistent with the view that
securities sold in an intrastate offering in one state should have to
come to rest within such state before purchasers may resell their
securities to out-of-state residents.\81\ Accordingly, both rules
provide that issuers who have previously conducted an intrastate
offering pursuant to Rule 147 or Rule 147A will not be able to conduct
another subsequent intrastate offering pursuant to either rule in a
different state for a period of six months from the date of the last
sale in the prior state, which is consistent with the duration of the
resale limitation period specified in our amendments to Rule 147(e) and
new Rule 147A(e).\82\ The use of a six-month period is a change from
the proposed nine-month period, and aligns these provisions with
changes being made to amended Rule 147(e) and new Rule 147A(e),
consistent with commenters' suggestions to reduce the nine-month resale
limitation period to six months.\83\
---------------------------------------------------------------------------

    \80\ See Rules 147(e) and 147A(e).
    \81\ See 1961 Release at 4.
    \82\ See Instruction to paragraph (c)(1) of Rule 147 and
Instruction to paragraph (c)(1) of Rule 147A.
    \83\ See Section II.B.4.c below.
---------------------------------------------------------------------------

B. Common Requirements of the Amendments to Rule 147 and New Rule 147A

    Our amendments to Rule 147 and the provisions of new Rule 147A are
substantially identical, except that, as discussed above, new Rule 147A
allows an issuer to make offers accessible to out-of-state residents
and to be incorporated or organized out-of-state.\84\ Under the rules
we adopt today, both amended Rule 147 and new Rule 147A will include
the following provisions:
---------------------------------------------------------------------------

    \84\ See Sections II.A.1and II.A.2 above.
---------------------------------------------------------------------------

     A requirement that the issuer satisfy at least one ``doing
business'' requirement that will demonstrate the in-state nature of the
issuer's business.

     A new ``reasonable belief'' standard for issuers to rely
upon in determining the residence of the purchaser at the time of the
sale of securities.
     A requirement that issuers obtain a written representation
from each purchaser as to his or her residency.
     The residence of a purchaser that is a non-natural person,
such as a corporation, partnership, trust or other form of business
organization, will be defined as the location where, at the time of the
sale, the entity has its ``principal place of business.''
     A limit on resales to persons resident within the state or
territory of the offering for a period of six months from the date of
the sale by the issuer to the purchaser of a security sold pursuant to
the exemption.
     An integration safe harbor that will include any prior
offers or sales of securities by the issuer, as well as certain
subsequent offers or sales of securities by the issuer occurring after
the completion of the offering.
     Disclosure requirements, including legend requirements, to
offerees and purchasers about the limits on resales.
1. Requirements for Issuers ``Doing Business'' In-State
a. Proposed Amendments
    Under the proposed rules, an issuer would be required to meet at
least one of the following requirements in order to be considered
``doing business'' in-state:
     The issuer derived at least 80% of its consolidated gross
revenues from the operation of a business or of real property located
in or from the rendering of services within such state or territory;
\85\
---------------------------------------------------------------------------

    \85\ See proposed Rule 147(c)(2)(i) and related notes to the
rule indicating how and when an issuer would calculate its revenue
for purposes of compliance with the proposed rule, based on when the
first offer of securities is made pursuant to the exemption.
---------------------------------------------------------------------------

     The issuer had at the end of its most recent semi-annual
fiscal period prior to the first offer of securities pursuant to the
exemption, at least 80% of its consolidated assets located within such
state or territory; \86\
---------------------------------------------------------------------------

    \86\ See proposed Rule 147(c)(2)(ii).
---------------------------------------------------------------------------

     The issuer intends to use and uses at least 80% of the net
proceeds to the issuer from sales made pursuant to the exemption in
connection with the operation of a business or of real property, the
purchase of real property located in, or the rendering of services
within such state or territory; \87\ or
---------------------------------------------------------------------------

    \87\ See proposed Rule 147(c)(2)(iii).
---------------------------------------------------------------------------

     A majority of the issuer's employees are based in such
state or territory.\88\
---------------------------------------------------------------------------

    \88\ See proposed Rule 147(c)(2)(iv).
---------------------------------------------------------------------------

b. Comments on the Proposed Amendments
    Several commenters supported our proposed amendments to the current
``doing business'' requirements in Rule 147(c)(2).\89\ One commenter
specifically favored the proposed disjunctive approach, requiring an
issuer to satisfy one of four threshold tests, thereby enabling
different types of issuers (e.g., a brick-and-mortar business versus an
online business) to confirm local residency and demonstrate the in-
state nature of their business.\90\ Another commenter, although noting
that the proposed requirements and thresholds appropriately reflect
characteristics that are in keeping with establishing a local presence,
was concerned that having to meet only one requirement may not
establish the local connection of the issuer to the state to the degree
anticipated by Section 3(a)(11) and encouraged a close review of this
issue in a Commission study.\91\
---------------------------------------------------------------------------

    \89\ CFA Letter; CFIRA Letter; CrowdCheck Letter; NASAA Letter.
    \90\ NASAA Letter.
    \91\ CFA Letter (``If the Commission determines to adopt the
proposed approach, however, we encourage a close review in the study
the Commission intends to undertake within three years of the
adoption of the amendments.''). See note 106.
---------------------------------------------------------------------------

    Two commenters supported our proposed amendment to the ``doing
business'' test to add an alternative threshold requirement based on
the location of a majority of an issuer's employees.\92\ Several
commenters supported using this additional criterion, but with
different percentage thresholds.\93\ Some of these commenters
recommended requiring that at least 80% of the issuer's employees be
based in the state,\94\ while another commenter supported requiring
that at least 75% of the issuer's employees be based in the state.\95\
---------------------------------------------------------------------------

    \92\ Milken Letter; NASAA Letter.
    \93\ Ely Letter; MacDougall Letter; Pearl Letter; Terdal Letter;
Wolff Letter.
    \94\ Ely Letter; MacDougall Letter; Pearl Letter; Terdal Letter.
    \95\ Wolff Letter.
---------------------------------------------------------------------------

    Several commenters opposed our proposed ``doing business''
requirements in favor of alternative standards.\96\ For example, some
of these commenters supported the use of five alternative criteria in
order for an issuer to be deemed a ``state business,'' specifically:
the issuer's main office be located in-state, and at least 80% of the
funds raised be used in-state, work is done in-state, employees live
in-state and owners reside in-state.\97\ Another commenter supported
generally these same criteria, but using 75% thresholds as opposed to
80% thresholds.\98\ Other commenters recommended a more flexible
standard that would move away from the strict 80% thresholds in favor
of majority requirements that would harmonize the current ``doing
business'' tests with the proposed test for number of employees.\99\
Finally, another commenter suggested a periodic review by the
Commission to evaluate the 80% thresholds to determine whether the
exemption succeeds in facilitating the goal of small business capital
formation while protecting investors.\100\
---------------------------------------------------------------------------

    \96\ Ely Letter; MacDougall Letter; Pearl Letter; Terdal Letter.
    \97\ Ely Letter; MacDougall Letter; Pearl Letter (recommending
that an issuer be required to satisfy ``at least three'' of these
five criteria or from an alternative ``reasonable list''). Cf.
Terdal Letter (``A more appropriate test of a ``local company''
would be one that has at least 80% of the employees' wages paid in
state, or perhaps 80% of the work (i.e. manufacturing, producing,
brewing, etc.) be done in state.'').
    \98\ Wolff Letter (recommending 75% thresholds for use of funds,
work done in-state, and number of employees residing in-state but
that the rules require only a majority of the owners' primary
residences be located in-state).
    \99\ Milken Letter (stating that the requirement for a precise
80% threshold ``can be confusing and difficult for issuers to
assess. Additionally, the high and precise threshold can exclude
issuers that rationally should qualify.''); Pearl Letter.
    \100\ NASAA Letter.
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c. Final Rules
    After considering the comments, we are adopting, as proposed,
updated and modernized ``doing business'' requirements in Rule 147 and
new Rule 147A to comport with contemporary small business
practices.\101\ We believe these updated requirements will expand the
universe of issuers that may rely on Section 3(a)(11) and the amended
Rule 147 safe harbor, as well as new Rule 147A, to conduct exempt
intrastate offerings, while continuing to require issuers to have an
in-state presence sufficient to justify reliance on these provisions.
Given the increasing ``interstate'' nature of small business
activities, we believe it has become increasingly difficult for
companies, even smaller companies that are physically located within a
single state or territory, to satisfy the issuer ``doing business''
requirements of current Rule 147(c)(2).\102\ Accordingly, we believe
these issuer ``doing business'' requirements, identical for both
amended Rule 147 and new Rule 147A, will provide issuers with greater
flexibility in conducting intrastate offerings and expand the
availability of

these two intrastate offering provisions.\103\
---------------------------------------------------------------------------

    \101\ See Rules 147(c)(2) and 147A(c)(2).
    \102\ See discussion in Section II.A.2 above.
    \103\ See, e.g., Transcript of Record 82-91, SEC Advisory
Committee on Small and Emerging Companies (June 3, 2015).
---------------------------------------------------------------------------

    As proposed, we are adopting amendments to Rule 147(c)(2) and
including provisions in new Rule 147A(c)(2) that will provide issuers
with greater flexibility to satisfy the current ``doing business''
requirements by adding an alternative test based on the location of a
majority of the issuer's employees while retaining the three 80%
threshold tests in current Rule 147(c)(2).\104\ Furthermore, while the
substance of the three 80% threshold requirements of current Rule
147(c)(2) is being retained in the final rules, compliance with any one
of the 80% threshold requirements (or the additional test based on the
majority of employees) will be sufficient to demonstrate the in-state
nature of the issuer's business, as proposed. This is a change from
current Rule 147(c)(2), which requires issuers to satisfy all three 80%
threshold requirements.
---------------------------------------------------------------------------

    \104\ See Rules 147(c)(2) and 147A(c)(2).
---------------------------------------------------------------------------

    We recognize that commenters had various alternative views on these
requirements. While some commenters sought to require issuers to meet
additional criteria, other commenters sought to lower the percentage
thresholds in the criteria to ease the issuer requirements. We believe
that the approach we are adopting in the final rules will provide
issuers with additional flexibility to satisfy the requirements, while
continuing to function as meaningful indicia of the in-state nature of
the issuer's business. In light of the fact that issuers will need to
meet only one of the threshold tests, we are not changing the current
80% threshold tests to a majority requirement as one commenter
suggested.\105\ We believe it is appropriate to first observe how the
updated doing business in-state requirements are used by issuers in
practice before making any further changes.\106\ Except as discussed
below, we also are not adopting alternative criteria for the doing
business in-state requirements, as suggested by several
commenters.\107\ We believe the existing criteria have generally served
states, issuers and investors well by being easy to understand and
apply, and when updated as discussed above, will appropriately reflect
characteristics in keeping with a local business presence.\108\
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    \105\ See Milken Letter.
    \106\ As we indicated in the Proposing Release, we expect the
staff to undertake to study and submit a report to the Commission no
later than three years following the effective date of the final
rules on whether this new framework appropriately provides
assurances that an issuer is doing business in the state in which
the offering takes place.
    \107\ See Ely Letter; MacDougall Letter; Pearl Letter; Terdal
Letter.
    \108\ See CFA Letter.
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    We are also making certain technical revisions to the three current
80% thresholds, as proposed, that we believe will simplify the
structure and application of the rules.\109\ In light of our amendments
to require issuers to satisfy only one of the threshold tests, we are
eliminating the current provision in Rule 147(c)(2)(i)(B), which does
not apply the revenue test to issuers with less than $5,000 in revenue
during the prior fiscal year.\110\ While this accommodation may be
reasonable in the context of the current conjunctive 80% threshold
requirements of Rule 147(c)(2), we do not believe it is necessary under
the new disjunctive approach that we are adopting in these rules.
---------------------------------------------------------------------------

    \109\ For example, in order to streamline the presentation of
Rule 147(c)(2), we are re-designating current Rule 147(c)(2)(i)(A)-
(B), 17 CFR 230.147(c)(2)(i)(A)-(B), which includes instructions on
how to calculate revenue under Rule 147(c)(2)(i), as Instruction to
paragraph (c)(2)(i) of Rule 147. Similarly, Rule 147A will also
include an instruction on how to calculate revenue under Rule
147A(c)(2)(i).
    \110\ 17 CFR 230.147(c)(2)(i)(B).
---------------------------------------------------------------------------

    Consistent with the proposal, and as supported by commenters, we
are adding an alternative requirement to the three modified 80%
threshold requirements. This requirement, which relates to the location
of a majority of the issuer's employees, will provide an additional
method by which an issuer may demonstrate that it conducts in-state
business sufficient to justify reliance on either Rule 147 or new Rule
147A. For these purposes, we are permitting an issuer to satisfy the
``doing business'' requirements by having a majority of its employees
based in such state or territory.\111\ An employee would be based in
the same state or territory of the issuer for purposes of this test if
such employee is based out of offices located within such state or
territory.\112\ For example, if an employee provides services in the
Maryland, Virginia and Washington, DC metro area out of the offices of
a company in Maryland, the employee would be based in Maryland for
purposes of this test. While some commenters suggested different
thresholds for the employee test (ranging from 75% to 80%), we believe
that using a majority of the employees test provides a standard that
more accurately captures the increasingly flexible ways that companies
structure and conduct their business operations, while still requiring
that more employees be located in-state than elsewhere. Current
workforce trends, such as telecommuting, whereby employees often work
in a different geographical location from their employer, suggest that
flexibility is particularly needed in this area. We believe adding this
criterion to expand upon the current doing business requirements in
Rule 147(c)(2) will provide additional flexibility to issuers by making
these requirements more consistent with modern business practices,
especially in light of the different roles employees play within
smaller companies and the different locations in which employees carry
out such roles, while still providing important indicia of the in-state
nature of an issuer's business.
---------------------------------------------------------------------------

    \111\ See Rules 147(c)(2)(iv) and 147A(c)(2)(iv).
    \112\ The state or territory in which an employee is based may,
or may not, be the same state or territory in which the employee
resides.
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2. Reasonable Belief as to Purchaser Residency Status
a. Proposed Amendments
    Consistent with the requirements in Regulation D,\113\ we proposed
to add a reasonable belief standard to the issuer's determination as to
the residence of the purchaser at the time of the sale of the
securities.\114\ As proposed, an issuer would satisfy the requirement
that the purchaser in the offering be a resident of the same state or
territory as the issuer's principal place of business by either the
existence of the fact that the purchaser is a resident of the
applicable state or territory, or by establishing that the issuer had a
reasonable belief that the purchaser of the securities in the offering
was a resident of such state or territory.\115\ We also proposed to
eliminate the requirement in current Rule 147 that issuers obtain a
written representation from each purchaser as to his or her residence,
as we believed this requirement may be unnecessary in light of the
proposed reasonable belief standard.\116\
---------------------------------------------------------------------------

    \113\ Rule 501(a) of Regulation D includes in the definition of
``accredited investor,'' persons who come within the enumerated
categories of the rule, or who the issuer reasonably believes come
within any of such categories, at the time of sale to such person.
17 CFR 230.501(a).
    \114\ See proposed Rule 147(d).
    \115\ Id.
    \116\ 17 CFR 230.147(f)(1)(iii).
---------------------------------------------------------------------------

b. Comments on the Proposed Amendments
    Several commenters supported the proposal to include a reasonable
belief standard.\117\ One of these commenters

stated that a reasonable belief standard will provide more certainty
for issuers about the availability of the exemption and increase its
utility without sacrificing investor protection.\118\
---------------------------------------------------------------------------

    \117\ ABA Letter; City of Adrian Letter; CFA Letter; NASAA
Letter.
    \118\ NASAA Letter.
---------------------------------------------------------------------------

    Commenters were divided on whether to eliminate the requirement to
obtain a written representation from the purchaser as to his or her
residence, with two commenters supporting the proposed elimination of
the requirement \119\ and two commenters opposing it.\120\ Commenters
opposing elimination of the requirement stated that the written
representation should not be the sole indication of residency under a
facts and circumstances exercise, but asserted that it is a useful
indication of residency.\121\
---------------------------------------------------------------------------

    \119\ CFIRA Letter; CrowdCheck Letter.
    \120\ CFA Letter; NASAA Letter.
    \121\ NASAA Letter (``this requirement should remain in place
but may be construed as evidence of, but not be dispositive of, a
reasonable belief of purchaser residency.'').
---------------------------------------------------------------------------

    Several commenters requested that the Commission provide a safe
harbor for determining an individual purchaser's residence, based upon
certain objective criteria.\122\ Two of those commenters supported the
creation of a non-exclusive safe harbor setting out the means by which
a reasonable belief may be established, including the circumstances in
which an issuer may rely on the steps taken by a third-party, such as a
service provider or intermediary.\123\ Another of those commenters
stated that Commission staff should work with the states to standardize
requirements for determining state of residency for purposes of
investor participation in an offering to help ensure compliance with
the residency requirement.\124\ In addition, the 2015 Small Business
Forum recommended that the Commission create a safe harbor for
determining the ``place of business'' of a non-natural person investor
in Rule 147 offerings, which could be as simple as a self-certification
as to its place of business.\125\
---------------------------------------------------------------------------

    \122\ CFIRA Letter; CrowdCheck Letter; Letter from Brandon
Smith, Managing Principal, Localstake Marketplace LLC, November 17,
2015 (``Localstake Letter''); Letter from Rose Oswald-Poels,
President/CEO, Wisconsin Bankers Association, January 8, 2016 (``WBA
Letter'').
    \123\ CFIRA Letter; CrowdCheck Letter.
    \124\ Localstake Letter.
    \125\ See 2015 Small Business Forum Recommendations.
---------------------------------------------------------------------------

c. Final Rules
    Consistent with the proposal, and with the determination of
accredited investor status under Regulation D,\126\ we are adopting
amendments to Rule 147 and a provision in new Rule 147A that will
include a reasonable belief standard for the issuer's determination as
to the residence of the purchaser at the time of the sale of the
securities.\127\ Under the final rules, an issuer will satisfy the
requirement that the purchaser in the offering be a resident of the
same state or territory in which the issuer is resident by either the
existence of the fact that the purchaser is a resident of the
applicable state or territory, or by establishing that the issuer had a
reasonable belief that the purchaser of the securities in the offering
was a resident of such state or territory.\128\ Under current Rule
147(d), regardless of the efforts an issuer takes to determine that
potential investors are residents of the state in which the issuer is
resident, the exemption is lost for the entire offering if securities
are offered or sold to just one investor that was not in fact a
resident of such state. We continue to believe that permitting issuers
to sell on the basis of a reasonable belief of a purchaser's in-state
residency status will increase the utility of amended Rule 147 and new
Rule 147A by providing issuers with additional certainty about the
availability of the exemption under Section 3(a)(11) or new Rule 147A
while still providing appropriate investor protections.\129\
---------------------------------------------------------------------------

    \126\ See note 113 above.
    \127\ See Rules 147(d) and 147A(d).
    \128\ Id.
    \129\ The burden will continue to be on the issuer to establish
that the purchaser is an in-state resident or that the issuer had a
reasonable belief as to residency. Otherwise, the sale to a non-
resident purchaser would preclude reliance on amended Rule 147 or
new Rule 147A.
---------------------------------------------------------------------------

    In a change from the proposal, both amended Rule 147 and new Rule
147A will include a requirement that issuers obtain a written
representation from each purchaser as to his or her residence.\130\ We
are persuaded by those commenters who stated that this requirement
should be retained and considered as evidence of, but not be
dispositive of, the purchaser's residency. In the context of Section
3(a)(11), the Commission has previously indicated that ``[t]he mere
obtaining of formal representations of residence . . . should not be
relied upon without more as establishing the availability of the
exemption.'' \131\ Whether an issuer has formed a reasonable belief
that the prospective purchaser is an in-state resident will be
determined on the basis of all facts and circumstances. Obtaining a
written representation from purchasers of in-state residency status
will not, without more, be sufficient to establish a reasonable belief
that such purchasers are in-state residents.\132\
---------------------------------------------------------------------------

    \130\ See Rules 147(f)(1)(iii) and 147A(f)(1)(iii).
    \131\ See 1961 Release at 3.
    \132\ See Instruction to paragraph (d) of Rule 147 and
Instruction to paragraph (d) of Rule 147A.
---------------------------------------------------------------------------

    In addition to the written representation, other facts and
circumstances could include, but will not be limited to, for example, a
pre-existing relationship between the issuer and the prospective
purchaser that provides the issuer with sufficient knowledge about the
prospective purchaser's principal residence or principal place of
business so as to enable the issuer to have a reasonable basis to
believe that the prospective purchaser is an in-state resident. An
issuer may also consider other facts and circumstances when
establishing the residency of a prospective purchaser, such as evidence
of the home address of the prospective purchaser, as documented by a
recently dated utility bill, pay-stub, information contained in state
or federal tax returns, any documentation issued by a federal, state,
or local government authority, such as a driver's license or
identification card, or a public or private database that the issuer
has determined is reasonably reliable, including credit bureau
databases, directory listings, and public records.
    While a few commenters \133\ and the 2015 Small Business Forum
recommended that the Commission provide a safe harbor for determining a
purchaser's residence, including the circumstances in which a
reasonable belief may be established, we are not doing so in the final
rules. Our rules do not provide a safe harbor for the reasonable belief
determination made under Rule 501(a) of Regulation D for exempt
offerings, and we do not believe that the determinations required for
amended Rule 147 and new Rule 147A present a more compelling case for
having such a provision. In addition, we are concerned that a safe
harbor could be viewed as an exclusive or minimum standard. We believe
that requiring issuers to consider the facts and circumstances in order
to establish a reasonable basis to believe that the purchaser is a
resident of the same state or territory in which the issuer is resident
is appropriate and will provide sufficient certainty for issuers
seeking to satisfy the requirements of the exemption. Commission staff
will consider available information on issuer compliance with the
``reasonable belief'' standards in connection with the study

of amended Rule 147 and new Rule 147A.\134\
---------------------------------------------------------------------------

    \133\ CFIRA Letter; CrowdCheck Letter; Localstake Letter; WBA
Letter.
    \134\ See Section I above.
---------------------------------------------------------------------------

3. Residence of Entity Purchasers
a. Proposed Amendments
    We proposed to define the residence of a purchaser that is a legal
entity, such as a corporation, partnership, trust or other form of
business organization, as the location where, at the time of the sale,
the entity has its principal place of business.\135\ For these
purposes, we also proposed to define a purchaser's ``principal place of
business,'' consistent with the proposed definition for issuer
eligibility purposes, as the location in which the officers, partners,
or managers of the entity primarily direct, control and coordinate its
activities.\136\
---------------------------------------------------------------------------

    \135\ See proposed Rule 147(d). Under the current rule, an
entity is a resident of the state or territory where the entity has
its ``principal office.'' Current Rule 147 does not define
``principal office.'' 17 CFR 230.147(c)(2)(iv).
    \136\ See proposed Rule 147(c)(1).
---------------------------------------------------------------------------

b. Comments on the Proposed Amendments
    Two commenters supported the proposed amendments to replace the
``principal office'' requirement for entity purchasers with the
``principal place of business'' standard, consistent with the standard
for issuers.\137\ One commenter suggested that the Commission clarify
how the residency of non-business trusts should be determined.\138\
---------------------------------------------------------------------------

    \137\ NASAA Letter; NextSeed Letter.
    \138\ Bishop Letter (recommending that Rule 147(d)(1) be amended
to add: ``A trust that is not deemed by the law of the state or
territory of its creation to be a separate legal entity is deemed to
be a resident of each state or territory in which its trustee is, or
trustees are, resident.'').
---------------------------------------------------------------------------

c. Final Rules
    Consistent with the proposal, we are adopting amendments to Rule
147 and a provision in new Rule 147A that will define the residence of
a purchaser that is a legal entity, such as a corporation, partnership,
trust or other form of business organization, as the location where, at
the time of the sale, the entity has its principal place of
business.\139\ The final rules define a purchaser's ``principal place
of business,'' consistent with the definition for determining issuer
residency contained in paragraph (c)(1) of Rules 147 and 147A, as the
location in which the officers, partners, or managers of the entity
primarily direct, control and coordinate its activities.\140\ In
addition, as suggested by one commenter, \141\ we are adding an
instruction to the requirement as to the residency of the purchaser
stating that a trust that is not deemed by the law of the state or
territory of its creation to be a separate legal entity should be
deemed to be a resident of each state or territory in which its trustee
is, or trustees are, resident.\142\
---------------------------------------------------------------------------

    \139\ See Rules 147(d) and 147A(d).
    \140\ See Rules 147(c)(1), 147(d)(1), 147A(c)(1) and 147A(d)(1).
    \141\ Bishop Letter.
    \142\ See Instruction 1 to paragraph (d)(1) of Rule 147 and
Instruction 1 to paragraph (d)(1) of Rule 147A.
---------------------------------------------------------------------------

4. Limitation on Resales
a. Proposed Amendments
    We proposed to amend the limitation on resales in Rule 147(e) to
provide that for a period of nine months from the date of the sale by
the issuer of a security sold pursuant to this rule, any resale by a
purchaser would need to be made only to residents within the
purchaser's state or territory of residence.\143\ In contrast, Rule
147(e) currently requires that during the period in which securities
are offered and sold in reliance on the intrastate offering exemption,
and for a period of nine months from the date of the last sale by the
issuer of such securities, all resales of any securities sold in the
offering shall only be made to persons resident within the state or
territory of which the issuer is a resident. In the Proposing Release,
we explained that the determination as to when a given purchase of
securities in an intrastate offering has come to rest in-state depends
less on a defined period of time after the final sale by the issuer in
such offering than it does on whether a resident purchaser has taken
the securities ``without a view to further distribution or resale to
non-residents.'' \144\ In this regard, we believed that a time-based
limitation on potential resales to non-residents that relates back to
the date of the purchase by a resident investor from the issuer would
more precisely address the concern regarding out-of-state resales.
---------------------------------------------------------------------------

    \143\ Proposed Rule 147(e).
    \144\ See Proposing Release, at text accompanying note 87.
---------------------------------------------------------------------------

    We also proposed to amend Rule 147(b) so that an issuer's ability
to rely on Rule 147 would no longer be conditioned on a purchaser's
compliance with Rule 147(e).\145\ We believed that this proposed
amendment to the application of Rule 147(e), as it relates to Rule
147(b), would increase the utility of the exemption by eliminating the
uncertainty created in the offering process for issuers under the
current rules. As proposed, issuers would remain subject to
requirements relating to, for example, in-state sales limitations,
legends, stop transfer instructions for transfer agents, and offeree
and purchaser disclosures in order to satisfy the exemption at the
federal level. In addition, issuers would continue to be subject to the
antifraud and civil liability provisions of the federal securities
laws, as well as state securities law requirements. Lastly, although we
did not propose to amend our rules to provide that securities issued
under amended Rule 147 be considered ``restricted securities'' under
Rule 144(a)(3), \146\ we requested comments on this question.
---------------------------------------------------------------------------

    \145\ See proposed Rule 147(b). As proposed, current Rule 147(a)
would be re-designated as Rule 147(b).
    \146\ 17 CFR 230.144(a)(3).
---------------------------------------------------------------------------

b. Comments on the Proposed Amendments
    Several commenters supported the proposed change to the limitation
on resales by resident purchasers to non-residents based on the date of
sale by the issuer to the relevant purchaser rather than based on the
date when the offering terminates.\147\ Commenters, however, had
differing views on the length of the holding period from the date of
sale. Two commenters supported a nine-month holding period from the
date of sale.\148\ One of these commenters reasoned that this period
sufficiently demonstrates the purchase was for investment without an
intent to distribute out-of-state or avoid registration.\149\ Two other
commenters stated that a period of six months is adequate to establish
that securities have ``come to rest'' in a state.\150\ Those commenters
noted that a nine-month period does not exist in any other securities
law requirements, so the potential exists for confusion. One commenter
recommended that the Commission clarify that bona fide gifts are not
subject to the limitation on resales out-of-state, and that a donee is
deemed to have acquired the securities when they were acquired by the
donor.\151\
---------------------------------------------------------------------------

    \147\ CFA Letter; CFIRA Letter; CrowdCheck Letter; NASAA Letter.
    \148\ CFA Letter; NASAA Letter.
    \149\ NASAA Letter.
    \150\ CrowdCheck Letter; CFIRA Letter. These commenters stated
that allowing a six-month period, by analogy to parts of Rule 144,
is more appropriate.
    \151\ Bishop Letter.
---------------------------------------------------------------------------

    Commenters were divided on whether securities issued under amended
Rule 147 should be considered ``restricted securities'' under Rule
144(a)(3). One commenter stated that securities issued under amended
Rule 147 should be considered ``restricted securities'' under Rule
144(a)(3).\152\ Two other

commenters stated that the securities should not be treated as
``restricted securities'' under Rule 144(a)(3), noting that the
``coming to rest'' in-state purpose of the nine-month restriction is
sufficiently distinct from the policy considerations underlying Rule
144.\153\
---------------------------------------------------------------------------

    \152\ NASAA Letter.
    \153\ CFIRA Letter; CrowdCheck Letter.
---------------------------------------------------------------------------

    In addition, several commenters supported no longer conditioning
the availability of the exemption on purchaser compliance with Rule
147(e).\154\ One of those commenters reasoned that if an issuer takes
reasonable steps to comply with the limitations on resale, the issuer
should not lose the original exemption if a purchaser does not comply
with the resale restrictions at a later date.\155\
---------------------------------------------------------------------------

    \154\ CFIRA Letter; CrowdCheck Letter; NASAA Letter.
    \155\ NASAA Letter.
---------------------------------------------------------------------------

c. Final Rules
    After considering the comments, we are adopting a requirement in
amended Rule 147 and new Rule 147A providing that for a period of six
months from the date of the sale of the security by the issuer any
resale of the security shall be made only to persons resident within
the state or territory in which the issuer was resident at the time of
the sale of the security by the issuer.\156\ We are persuaded by those
commenters that indicated that a period of six months is adequate to
establish that securities sold in an intrastate offering have ``come to
rest'' in a state by analogizing to provisions of Rule 144, in which a
six-month holding period is deemed sufficient to establish a requisite
investment intent.\157\ In this regard, given the use of a six-month
resale restriction in the Rule 144 context, we believe that a similar
resale restriction in the intrastate offering context should provide
adequate assurance that the securities will come to rest in-state.\158\
---------------------------------------------------------------------------

    \156\ Rules 147(e) and 147A(e).
    \157\ See CFIRA Letter and CrowdCheck Letter. Rule 144 provides
a safe-harbor from being deemed a ``statutory underwriter'' under
Section 2(a)(11) of the Securities Act. Specifically, Rule
144(d)(1)(i) requires a six-month holding period for restricted
securities sold by issuers reporting under the Exchange Act in order
for a purchaser to resell such securities and not be deemed an
underwriter.
    \158\ In such circumstances, resales of securities that were
initially purchased in an intrastate offering must themselves be
registered or exempt from registration pursuant to any state
securities laws where such resale takes place.
---------------------------------------------------------------------------

    We note that bona fide gifts are not subject to the limitation on
resales in amended Rule 147 or new Rule 147A.\159\ Since bona fide
gifts are not transactions for value, they require no investment
decision by the donee and thus do not involve the sale of a security
subject to regulation under the Securities Act.\160\ However, we note
that subsequent resales of donated securities are subject to the resale
restrictions regardless of the state in which the holder of the donated
securities resides. To address bona fide gifts of securities to out-of-
state donees, as well as the resales of securities that were wrongfully
sold to out-of-state purchasers, within the six month re-sale
limitation period, we are revising our proposed resale limitation to
focus on the state or territory in which the issuer was resident, as
opposed to where the last purchaser of the securities may have resided.
Accordingly, the resale limitation in the final rules limits resales to
``persons resident within the state or territory in which the issuer
was resident . . . at the time of the sale of the security by the
issuer'' as opposed to limiting resales to ``persons resident within
the purchaser's state or territory of residence,'' as proposed. We
believe this revision will address situations in which purchasers in
the offering subsequently gift or wrongfully sell their securities to
out-of-state residents who then wish to resell their securities within
the six month limitation of paragraph (e). This change to the rules
makes clear that the six-month limitation on resales applies to all
holders of the securities, including holders subsequent to the original
purchaser, whether they received the shares as a gift, donation, or by
purchase.\161\
---------------------------------------------------------------------------

    \159\ See Bishop Letter.
    \160\ Section 2(a)(3) of the Securities Act defines ``sale'' or
``sell'' to ``include every contract of sale or disposition of a
security or interest in a security, for value.'' A lack of monetary
consideration, however, does not always mean that there was not a
sale or offer for sale for purposes of Section 5. See, e.g., Capital
General Corporation, 54 SEC Docket 1714, 1728-29 (July 23, 1993)
(Capital General's ``gifting'' of securities constituted a sale
because it was a disposition for value, the ``value'' arising ``by
virtue of the creation of a public market for the issuer's
securities.''). See also SEC v. Harwyn Industries Corp., 326 F.
Supp. 943 (S.D.N.Y. 1971).
    \161\ See Rules 147(e) and 147A(e).
---------------------------------------------------------------------------

    As proposed, the resale limitation period for both amended Rule
147(e) and new Rule 147A(e) will relate back to the date of purchase by
a resident investor from the issuer, in contrast to current Rule 147(e)
that does not start the resale limitation period until the offering has
terminated (i.e., until all offers and sales have ceased).\162\ We
continue to believe that a time-based limitation on potential resales
to non-residents of securities purchased in an intrastate offering that
relates back to the date of purchase by a resident investor from the
issuer would more precisely address the concern regarding out-of-state
resales.
---------------------------------------------------------------------------

    \162\ The resale limitation period may end on different dates
for different purchasers if the issuer sold shares on multiple
dates.
---------------------------------------------------------------------------

    In light of our revision to the resale limitation to focus on the
state where the issuer is a resident, we are including additional
language in amended Rule 147(e) and new Rule 147A(e) to specify that
all re-sales during this six month resale limitation period will be
restricted to the state or territory in which the issuer was a resident
at the time of the sale of the security by the issuer to a purchaser.
Accordingly, if an issuer were to change its state or territory of
residence during the six month resale limitation period, all resales
would, nevertheless, continue to be limited to the state or territory
in which the issuer resided at the time of the original sale of
securities in reliance upon either Rule 147 or Rule 147A. We believe
this additional language will preserve the intent of the proposed
resale restriction--to help ensure that the securities offered pursuant
to an intrastate offering exemption have come to rest within the state
of the offering before being resold.
    As proposed, an issuer's ability to rely on the respective rules
will not be conditioned on a purchaser's compliance with Rule 147(e)
and Rule 147A(e).\163\ As discussed in the Proposing Release, the
application of current Rule 147(e) in the overall scheme of the safe
harbor can cause uncertainty for issuers. We continue to believe that
removing the condition on purchaser compliance with Rule 147(e) will
increase the utility of the exemption by eliminating the uncertainty
created in the offering process for issuers under the current rules. As
one commenter noted, if an issuer takes reasonable steps to comply with
the limitations on resale, it should not lose the availability of the
exemption due to a purchaser not complying with the resale
limitations.\164\ We continue to believe that eliminating this
uncertainty should not result in an increased risk of issuer non-
compliance with the rules, because issuers will remain subject to
requirements relating to, for example, in-state sales limitations,
legends, stop transfer instructions for transfer agents, and offeree
and purchaser disclosures, in order to satisfy the exemption at the
federal level.\165\ In addition, issuers will

continue to be subject to the antifraud and civil liability provisions
of the federal securities laws, as well as state securities law
requirements.
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    \163\ See Rules 147(b) and 147A(b). Current Rule 147(a) would be
re-designated as Rule 147(b).
    \164\ NASAA Letter.
    \165\ Commission staff will seek to review information gathered
by state regulators on issuer compliance with the legend
requirements in amended Rule 147(f) and new Rule 147A(f) as part of
the study of amended Rule 147 and new Rule 147A. See Section I.
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    Lastly, while one commenter believed that securities issued under
amended Rule 147 should be considered ``restricted securities'' under
Rule 144(a)(3), \166\ we believe that limiting the resale of these
securities only to persons resident within the same state or territory
in which the issuer is a resident for a period of six months from the
date of the sale of the security by the issuer to the purchaser is
sufficient to assure that the offering has come to rest in the state or
territory in which the issuer resides and thereby preserve the local
character of the offering. We note that states are free to impose any
additional requirements they believe are necessary to protect the
residents of their states, including imposing further transfer
restrictions on securities issued under amended Rule 147 or new Rule
147A similar to that required under Rule 144(a)(3). In addition,
persons reselling securities will need to consider whether they could
be an ``underwriter'' if they acquired the securities with a view to
``distribution'' or if they are participating in a ``distribution.''
\167\ A seller that complies with the conditions of the Rule 144 safe
harbor will not be deemed to be an underwriter.\168\
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    \166\ Id.
    \167\ See Section 4(a)(1) of the Securities Act (exempting from
registration ``transactions by any person other than an issuer,
underwriter, or dealer'') and Section 2(a)(11) of the Securities Act
(defining the term ``underwriter''). 15 U.S.C. 77d(a)(1) and 15
U.S.C. 77b(a)(11).
    \168\ 17 CFR 230.144.
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5. Integration
a. Proposed Amendments
    The proposed Rule 147 integration safe harbor would include any
prior offers or sales of securities by the issuer, as well as certain
subsequent offers or sales of securities by the issuer occurring within
six months after the completion of an offering exempted by Rule 147. As
proposed, offers and sales made pursuant to Rule 147 would not be
integrated with:
     Prior offers or sales of securities; or
     Subsequent offers or sales of securities that are:
     Registered under the Act, except as provided in proposed
paragraph (h) of Rule 147;
     Exempt from registration under Regulation A (17 CFR
230.251 et seq.);
     Exempt from registration under Rule 701 (17 CFR 230.701);
     Made pursuant to an employee benefit plan;
     Exempt from registration under Regulation S (17 CFR
230.901 through 230.905);
     Exempt from registration under Section 4(a)(6) of the Act
(15 U.S.C. 77d(a)(6)); or
     Made more than six months after the completion of an
offering conducted pursuant to this rule.\169\
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    \169\ See proposed Rule 147(g).
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b. Comments on the Proposed Amendments
    One commenter supported including registered offers and sales and
certain other exempt offerings occurring within six months after
completion of the offering in the integration safe harbor, as
proposed.\170\ The same commenter did not support providing a safe
harbor for any and all prior offers or sales of securities by the
issuer, as proposed in paragraph (g)(1) of the amended rule, and
instead recommended restricting the safe harbor to cover only offers
and sales of securities that take place before the six-month period
immediately preceding the Rule 147 offering.\171\ While acknowledging
that the proposed integration safe harbor is consistent with the
integration safe harbor in Rule 251(c) of Regulation A, the commenter
distinguished Regulation A from Rule 147 by noting that ``Regulation A
is a quasi-registration subject to regulatory oversight by the
Commission and the states while a Rule 147 offering may be exempt at
both the federal and state level.'' In determining an integration safe
harbor model to follow, the commenter indicated it would be better to
look to Rule 502(a) of Regulation D, which limits the safe harbor for
private offerings to offers and sales occurring either six months
before, or six months after, a Regulation D offering.\172\
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    \170\ NASAA Letter.
    \171\ Id.
    \172\ Id. Rule 502(a) provides that ``Offers and sales that are
made more than six months before the start of a Regulation D
offering or are made more than six months after completion of a
Regulation D offering will not be considered part of that Regulation
D offering, so long as during those six month periods there are no
offers or sales of securities by or for the issuer that are of the
same or a similar class as those offered or sold under Regulation D,
other than those offers or sales of securities under an employee
benefit plan as defined in Rule 405 under the Act.'' 17 CFR
230.502(a).
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    On the other hand, two commenters believed that Rule 147 offerings
should not be integrated with any other exempt offerings.\173\ One of
these commenters recommended that Rule 147 contain language expressly
stating that an offering made in reliance on Rule 147 will not be
integrated with another exempt offering made concurrently, provided
that each offering meets the requirements of the claimed
exemption.\174\
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    \173\ NextSeed Letter; Localstake Letter.
    \174\ NextSeed Letter.
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c. Final Rules
    After considering the comments, we are adopting amendments to the
integration safe harbor under Rule 147 and providing an identical
integration safe harbor provision in new Rule 147A, substantially as
proposed. The integration safe harbor will cover any prior offers or
sales of securities by the issuer, as well as certain subsequent offers
or sales of securities by the issuer occurring after the completion of
an offering pursuant to Rule 147 or Rule 147A, as applicable.
Accordingly, offers and sales made pursuant to Rules 147 and 147A will
not be integrated with:
     Offers or sales of securities made prior to the
commencement of offers and sales of securities pursuant to Rules 147 or
147A; or
     Offers or sales of securities made after completion of
offers and sales pursuant to Rules 147 or 147A that are:
     Registered under the Securities Act, except as provided in
Rule 147(h) or Rule 147A(h);
     Exempt from registration under Regulation A (17 CFR
230.251 et seq.);
     Exempt from registration under Rule 701 (17 CFR 230.701);
     Made pursuant to an employee benefit plan;
     Exempt from registration under Regulation S (17 CFR
230.901 through 230.905);
     Exempt from registration under Section 4(a)(6) of the Act
(15 U.S.C. 77d(a)(6)); or
     Made more than six months after the completion of an
offering conducted pursuant to Rules 147 or 147A.\175\
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    \175\ See Rules 147(g) and 147A(g).
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    As discussed in the Proposing Release, integration safe harbors
provide issuers, particularly smaller issuers whose capital needs often
change, with greater certainty about their eligibility to comply with
an exemption from Securities Act registration.\176\ Consistent with the
proposal and the approach taken in Rule 251(c) of Regulation A, the
safe harbor from integration provided by Rule 147(g) and Rule 147A(g)
will expressly provide that any offer or sale made in reliance on the
respective rules will not be integrated with any other offer or sale
made either before the commencement of, or more than six

months after the completion of, the respective intrastate offerings
under either Rule 147 or Rule 147A. For transactions that fall within
the scope of the safe harbor, issuers will not have to conduct an
integration analysis of the terms of any offering being conducted under
the other specified provisions in order to determine whether the two
offerings would be treated as one for purposes of qualifying for either
exemption.\177\ While one commenter recommended that the Commission
adopt a safe harbor more closely aligned with the provisions of Rule
502(a) of Regulation D,\178\ we believe the integration safe harbor in
Rule 251(c) of Regulation A is more consistent with the Commission's
post-JOBS Act approach to integration that has evolved since the
adoption of Regulation D in 1982 to better articulate the principles
underlying the integration doctrine in light of current offering
practices and developments in information and communication
technology.\179\ As we explained in the Proposing Release, we believe
that our approach to integration will provide issuers with greater
certainty as to the availability of an exemption for a given offering
and increase consistency in the application of the integration doctrine
among the exemptive rules available to smaller issuers, while
preserving important investor protections provided in each
exemption.\180\
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    \176\ See Proposing Release at Section II.B.4.d. (Integration);
see also 2015 Regulation A Release at Section II.B.5. (Integration).
    \177\ The issuer will, however, need to comply with the
requirements of each exemption that it is relying upon. For example,
an offering made pursuant to Rule 506(b) will not be integrated with
a subsequent offering pursuant to Rule 147A, but the issuer will
need to comply with the requirements of each rule, including the
limitation on general solicitation for offers made pursuant to Rule
506(b).
    \178\ NASAA Letter.
    \179\ See also, Regulation Crowdfunding Adopting Release.
    \180\ See Proposing Release at text accompanying note 103. See
also Rule 251(c) of Regulation A [17 CFR 230.251(c)]; Rule 701 [17
CFR 230.701]. Each exemption is designed based on a particular type
of offer and investor, with corresponding requirements that must be
satisfied.
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    The bright-line integration safe harbor we are adopting in amended
Rule 147(g) and new Rule 147A(g) will assist issuers, particularly
smaller issuers, in analyzing certain transactions, but will not
address the issue of potential offers or sales that occur concurrently
with, or close in time after, a Rule 147 or 147A offering. There is no
presumption that offerings outside the integration safe harbors should
be integrated. Rather, whether concurrent or subsequent offers and
sales of securities will be integrated with any securities offered or
sold pursuant to amended Rule 147 or new Rule 147A will depend on the
particular facts and circumstances, including whether each offering
complies with the requirements of the exemption that is being relied
upon for the particular offering.\181\ For example, an issuer
conducting a concurrent exempt offering for which general solicitation
is not permitted will need to be satisfied that purchasers in that
offering were not solicited by means of the offering made in reliance
on Rule 147 or new Rule 147A.\182\ If an offer fails to comply with the
requirements of the exemption, and the offer is not registered and no
other exemption is available, that offer would be in violation of
Section 5 of the Securities Act.
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    \181\ The integration concept was first articulated by the
Commission in 1933 and was further developed in two interpretive
releases issued in the 1960s. See SEC Rel. No. 33-97 (Dec. 28,
1933); SEC Rel. No. 33-4434 (Dec. 6, 1961); SEC Rel. No. 33-4552
(Nov. 6, 1962). The interpretive releases stated that determining
whether a particular securities offering should be integrated with
another offering requires an analysis of the specific facts and
circumstances of the offerings. The Commission identified five
factors to consider in making the determination of whether the
offerings should be integrated. See SEC Rel. No. 33-4552 (Nov. 6,
1962). See also Rule 502(a) of Regulation D. More recently, the
Commission has provided additional guidance to help issuers evaluate
whether two offerings should be integrated. In 2007, the Commission
provided a framework for analyzing how an issuer can conduct
simultaneous registered and private offerings. See SEC Release No.
33-8828 (Aug. 3, 2007) [72 FR 45116 (Aug. 10, 2007)]. In 2015, when
implementing provisions of the JOBS Act, the Commission applied this
framework to concurrent exempt offerings, including situations where
one offering permits general solicitation and the other does not.
See 2015 Regulation A Release at Section II.B.5 and Regulation
Crowdfunding Adopting Release at Section II.A.1.c. In those
releases, the Commission noted that an offering made pursuant to
Regulation A or Regulation Crowdfunding should not be integrated
with another exempt offering made by the issuer, provided that each
offering complies with the requirements of the exemption that is
being relied upon for the particular offering. Id.
    \182\ For a concurrent offering under Rule 506(b), purchasers in
the Rule 506(b) offering could not be solicited by means of a
general solicitation under Rule 147 or new Rule 147A. The issuer
would need an alternative means of establishing how purchasers in
the Rule 506(b) offering were solicited. For example, the issuer may
have had a preexisting substantive relationship with such
purchasers. Otherwise, the solicitation conducted in connection with
the Rule 147 or Rule 147A offering would very likely preclude
reliance on Rule 506(b). See also SEC Rel. No. 33-8828 (Aug. 3,
2007) [72 FR 45116 (Aug. 10, 2007)].
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    Amended Rule 147, as a safe harbor under Section 3(a)(11), will
continue to prohibit out-of-state offers to any person not residing in
the same state or territory in which the issuer is resident.
Accordingly, an issuer conducting a concurrent exempt offering for
which general solicitation is permitted across state lines would be
unlikely to comply with the in-state offer restriction in Rule
147(b).\183\ For example, issuers relying on amended Rule 147 will not
be able to conduct a concurrent Regulation Crowdfunding offering, since
by its nature a Regulation Crowdfunding offering would involve a
multistate offer due to the offering terms being made publicly
available from an intermediary's online platform.\184\
---------------------------------------------------------------------------

    \183\ See Rule 147(b).
    \184\ For the same reasons, issuers will not be able to rely on
amended Rule 147 and conduct concurrent Regulation A offerings or
registered public offerings.
---------------------------------------------------------------------------

    An issuer relying on the new Rule 147A exemption, which permits
multi-state offers, may conduct a concurrent exempt offering for which
general solicitation is permitted, so long as the issuer complies with
the legend and disclosure requirements of Rule 147A(f), as well as any
additional restrictions on the general solicitation required by the
other exemption concurrently being relied upon by the issuer. For
example, the limitations imposed on advertising the terms of the
offering pursuant to Rule 204 of Regulation Crowdfunding would limit
the issuer's general solicitation in a concurrent offering made
pursuant to Rule 147A. Similarly, an issuer conducting a concurrent
Rule 506(c) offering could not include in its Rule 506(c) general
solicitation materials an advertisement of a concurrent Rule 147A
offering, unless that advertisement also included the disclosure
required by, and otherwise complied with, paragraph (f) of Rule
147A.\185\
---------------------------------------------------------------------------

    \185\ See Rule 147A(f); see also discussion in Section II.A.1.
---------------------------------------------------------------------------

    As discussed in the Proposing Release, we are mindful of the risk
that offers made pursuant to an exemption shortly before a registration
statement is filed could be viewed as conditioning the market for that
registered offering. Accordingly, final Rules 147 and 147A will exclude
from the safe harbor any such offer made to persons other than
qualified institutional buyers and institutional accredited investors
within the 30-day period before a registration statement is filed with
the Commission.\186\ Commission staff expects to review issuer
compliance with the expanded integration safe harbor as part of the
study of amended Rule 147 and new Rule 147A.\187\
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    \186\ See Rules 147(h) and 147A(h). In such circumstances,
whether an offer made within the thirty-day period before the filing
of a registration statement constitutes an impermissible offer for
purpose of Securities Act Section 5(c) will be based on the facts
and circumstances of such offer.
    \187\ See Section I above.
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6. Disclosures to Investors
a. Proposed Amendments
    We proposed to retain the substance of the disclosure requirements
of

current Rule 147(f)(3), in modified form. As proposed, Rule 147(f)(3)
would require issuers to make specified disclosures to offerees and
purchasers about the limitations on resale contained in proposed Rule
147(e) and to include the legend set forth in proposed Rule
147(f)(1)(i) on the certificate or other document evidencing the
offered security. Although the disclosure should be prominently
disclosed to each offeree and purchaser at the time any offer or sale
is made by the issuer to such person, the proposed amendments would no
longer require that such disclosure be made in writing in all
instances. Instead, the proposed amendments would require issuers to
provide the required disclosure to offerees in the same manner in which
an offer is communicated, while continuing to require written
disclosure to all purchasers. In addition, the proposed amendments
would no longer require issuers to disclose to offerees and purchasers
the stop transfer instructions provided by an issuer to its transfer
agent \188\ or the provisions of Rule 147(f)(2) regarding the issuance
of new certificates during the Rule 147(e) resale period.\189\
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    \188\ See 17 CFR 230.147(f)(1)(ii).
    \189\ See 17 CFR 230.147(f)(2).
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b. Comments on the Proposed Amendments
    Two commenters supported the proposal to include in the text of the
amended rule the specific language of the required disclosure.\190\
These commenters also stated that all offerees and purchasers should
continue to receive written disclosures, rather than, as proposed,