Rule 147 permits the sale of unregistered securities (i.e. securities that are NOT registered with the SEC) provided the issuer and the purchasers are entirely within one state (e.g. New York, Texas, California…).
Candidates should remember the framework of Rule 147 to guide their analysis on the exam. The exemption applies only to issues genuinely local in character, representing local financing by local industries, carried out through local investment.
Let’s review the specific criteria for a Rule 147 offering:
Who can issue securities?
The issuer (company selling securities) must be a resident of the state AND doing business within the state. Therefore, the issuer must meet two tests:
Issuer Residence Test
Issuer Doing Business Test
Who can buy securities?
Only state residents can receive offers and make purchases in a 147 offering. Who is a state resident?
- Existing corporations, partnerships, or trusts whose principal office is in the state; OR
- Individuals with their principal residence in the state; OR
- Businesses that are organized for the specific purpose of acquiring Rule 147 securities provided all of the beneficial owners (e.g. partners) are residents of the state.
When can the Rule 147 securities be resold?
- Sales to state residents: no holding or restricted period
- Sales to out-of-state residents: permitted nine months after the last sale by the issuer
Remember, the nine month out-of-state resale provision clock starts only after the issuer has completed the distribution. So, the nine month clock does not start when you purchase the securities, instead, it starts only after the issuer has completed the distribution.
Series 7, Series 10, Series 24, Series 63, Series 65, Series 66, Series 79