SEC Rule 147

Overview and Regulatory Purpose

Section 3(a)(11) of the Securities Act exempts from registration any 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. 

This exemption's constitutional foundation rests on Congress's Commerce Clause authority — the Securities Act, as a whole, regulates interstate commerce in securities, and an offering genuinely confined within a single state's borders, involving no meaningful interstate commerce dimension, falls outside the core subject matter that justified federal securities regulation in the first instance.

The practical challenge that Rule 147 addresses is that Section 3(a)(11)'s statutory text, while conceptually clear, requires substantial interpretive elaboration to apply with confidence in specific factual circumstances — what does it mean for an issuer to be doing business within a state, how should residency of purchasers be verified, and what happens if a purchaser who was genuinely a state resident at the time of purchase subsequently moves out of state and attempts to resell the securities to an out-of-state buyer, potentially converting what began as a genuinely intrastate offering into a de facto interstate distribution.

Rule 147 provides objective, administrable answers to these interpretive questions, giving issuers, their counsel, and state securities regulators a shared and predictable framework for structuring intrastate offerings with confidence that the offering will qualify for Section 3(a)(11)'s exemption. 

The rule's approach reflects a deliberate regulatory philosophy specific to the intrastate exemption context: because state securities regulators retain full authority over intrastate offerings — the federal exemption from Section 5 registration does not preempt state blue sky registration and antifraud requirements — the federal safe harbor's function is narrower than in other exemptive contexts, focused specifically on ensuring the offering's genuine intrastate character rather than substituting for the substantive investor protection that state regulation independently provides.

Statutory Authority and Rulemaking History

Rule 147 derives its statutory authority from Section 3(a)(11) of the Securities Act of 1933 — the specific statutory exemption that the rule operationalises as a safe harbor — together with Section 19(a)'s general rulemaking authority. 

Unlike many Securities Act exemptive rules that derive their authority from the Commission's general exemptive power under Section 28, Rule 147's tethering directly to Section 3(a)(11)'s specific statutory text is a defining structural feature that distinguishes the rule from its more flexible companion, Rule 147A, and that constrains the Commission's ability to depart from the statute's specific requirements, including the in-state incorporation condition that Section 3(a)(11) itself imposes.

Rule 147 was originally adopted in 1974, establishing the foundational safe harbor framework for the Section 3(a)(11) exemption that had otherwise required fact-intensive case-by-case analysis without objective regulatory guidance. 

The Commission comprehensively modernised Rule 147 on October 26, 2016 — Securities Act Release No. 33-10238, published at 81 FR 83550, November 21, 2016, effective April 20, 2017 — simultaneously adopting a companion exemption, Rule 147A, that mirrors amended Rule 147's substantive conditions while deriving its exemptive authority from the Commission's general Section 28 power rather than from Section 3(a)(11)'s text directly, freeing Rule 147A from the in-state incorporation requirement that continues to constrain Rule 147.

The 2016 modernisation was motivated by the Commission's recognition that Rule 147's pre-2016 framework — dating to 1974 and reflecting mid-20th-century assumptions about how intrastate businesses operate and how offering communications reach investors — had become poorly calibrated to internet-era capital formation practice, particularly the emergence of state-level intrastate crowdfunding exemptions that relied on Rule 147 compliance as a foundation but that state regulators and issuers found the pre-2016 rule's specific doing-business and communications restrictions poorly suited to online securities offering platforms. Rule 147 was subsequently amended January 14, 2021, in Securities Act Release No. 33-10884, 86 FR 3594, as part of the Commission's Exempt Offering Framework rulemaking, making harmonising technical adjustments alongside parallel changes to Regulation D, Regulation A, and Regulation Crowdfunding.

Key Provisions and Operative Requirements

Rule 147(a) establishes the scope of the exemption. Offers and sales by or on behalf of an issuer of its securities made in accordance with Rule 147 are exempt from Section 5 of the Act by virtue of Section 3(a)(11). This exemption is not available to an issuer that is an investment company registered or required to be registered under the Investment Company Act of 1940, reflecting the Commission's determination that the specialised regulatory framework applicable to registered investment companies is incompatible with the intrastate exemption's structure.

Rule 147(b) establishes the nature of the issuer condition — the core distinguishing feature that separates Rule 147 from Rule 147A. 

The issuer of the securities must, at the time of any offers and sales, be a resident of the state or territory in which all of the sales are made, meaning it must be incorporated or organized under the laws of that state or territory if it is a corporation, and be doing business within that state or territory in accordance with the four-part doing-business test the rule establishes.

The doing business requirement is satisfied where the issuer meets at least one of four alternative thresholds: 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 in, the state or territory; the issuer had at the end of its most recent semiannual fiscal period at least 80% of its consolidated assets located within the state or territory; the issuer intends to use and uses at least 80% of the net proceeds from the offering in connection with the operation of a business or of real property, purchase of real property located in, or rendering of services within the state or territory; or a majority of the issuer's employees are based in the state or territory. 

This four-part disjunctive structure — satisfying any one of the four thresholds is sufficient — provides issuers with meaningful flexibility in demonstrating their genuine intrastate business character even where their specific operational profile does not satisfy every conceivable measure of in-state presence.

Rule 147(b) also addresses serial intrastate offerings: an issuer that has offered or sold securities in reliance on Rule 147 or Rule 147A may not make another offering pursuant to Rule 147 in a different state or territory until the expiration of a period equal to the resale limitation period applicable to the prior offering — the six-month period discussed below — calculated from the date of the last sale in the prior offering. 

This restriction prevents an issuer from artificially relocating their principal place of business in rapid succession to conduct serial intrastate offerings across multiple states without genuine and sustained business ties to each jurisdiction.

Rule 147(c) establishes the residence of purchasers condition. Sales of securities pursuant to Rule 147 shall be made only to persons resident within the state or territory in which the issuer is a resident, as determined pursuant to Rule 147(b), or to persons the issuer reasonably believes, at the time of sale, are residents of that state or territory. As with Rule 147A, an accompanying instruction confirms that a written representation of residency status obtained from a purchaser, standing alone, is not sufficient to establish the issuer's reasonable belief in that purchaser's in-state residency, requiring more substantial verification measures.

Rule 147(d) establishes the limitation on resales — the six-month holding period that constrains the secondary market for securities purchased in a Rule 147 offering. For a period of six months from the date of the sale by the issuer, any resale of the securities shall be made only to persons resident within the state or territory in which the offering was conducted. 

This resale restriction is the mechanism that prevents an intrastate offering from becoming, in substance, an interstate distribution through immediate resale of the securities to out-of-state purchasers, thereby preserving the genuinely intrastate character of the offering and its underlying purchaser base throughout the resale limitation period.

Rule 147(e) establishes precautions against interstate offers and sales — requiring the issuer to implement specific precautions to prevent the offering from being made to non-residents, including placing a prominent legend on the certificate or other document evidencing the security stating that the securities have not been registered and that resale is restricted to state residents for six months, and obtaining a written representation of residency from each purchaser. 

These precautions provide the documentary and procedural infrastructure through which the issuer can demonstrate its compliance with the rule's residency-focused conditions.

Scope of Application

Rule 147 is available to issuers organized in, and conducting their principal business operations within, the specific state or territory in which the offering is conducted, and is unavailable to investment companies registered or required to be registered under the Investment Company Act of 1940. 

As with Rule 147A, the rule imposes no dollar limit on the aggregate offering amount, distinct from the dollar-limited exemptive frameworks of Rule 504 and Regulation Crowdfunding. The exemption is unavailable where the issuer engages in general solicitation or general advertising that could reasonably be expected to reach persons outside the offering state — the restriction that Rule 147A specifically relaxed while Rule 147 retains it, reflecting the continuing statutory tether to Section 3(a)(11)'s text that constrains Rule 147's flexibility.

This general solicitation restriction requires issuers relying on Rule 147, as distinct from those relying on Rule 147A, to confine their marketing communications — website content, advertisements, and other promotional materials — to means and media that are genuinely and verifiably targeted to the offering state's residents, avoiding national publications, unrestricted social media promotion, or other communications channels that are inherently likely to reach a national or interstate audience even where the issuer's actual intent is to target in-state investors exclusively. 

This constraint is frequently cited as the single most significant practical limitation of Rule 147 relative to Rule 147A in the internet marketing era, since it requires issuers to affirmatively restrict the geographic reach of their promotional communications rather than merely confining actual sales to in-state residents while marketing more broadly.

Relationship to Related Rules and Regulations

Rule 147's most direct relationship is with Rule 147A, its companion federal-only intrastate exemption. The two rules share an identical substantive core — the same 80% four-part doing-business threshold test, the same six-month resale limitation, and the same reasonable belief standard for residency verification — while differing specifically on the in-state incorporation requirement, which Rule 147 retains as a consequence of its statutory tethering to Section 3(a)(11), and the general solicitation restriction, which Rule 147 also retains while Rule 147A relaxes it. Issuers whose state law intrastate crowdfunding exemptions specifically require compliance with Section 3(a)(11) and Rule 147 — as many states' crowdfunding statutes were originally drafted to require — must use Rule 147 rather than the more flexible Rule 147A to preserve their state law exemption's availability.

Rule 147's resale limitation interacts with the broader restricted securities framework of Rule 144, though securities purchased in a Rule 147 offering are not restricted securities within the meaning of Rule 144 — the rule's own independent six-month resale limitation operates as a distinct restriction rather than as an application of Rule 144's holding period and manner-of-sale conditions. 

A purchaser reselling Rule 147 securities beyond the rule's own six-month period must independently identify a supporting exemption for the resale transaction, most commonly Section 4(a)(1)'s exemption for transactions by persons other than an issuer, underwriter, or dealer, to support any subsequent resale beyond the rule's own geographic and temporal limitations.

Rule 147's federal Section 5 exemption operates alongside, rather than displacing, the continuing applicability of state blue sky registration and merit review requirements — the intrastate exemption reflects Congress's judgment that offerings confined to a single state are more appropriately regulated at the state level, where state securities regulators are well positioned to oversee through their own blue sky laws without requiring the additional layer of federal registration that Section 5 would otherwise impose. 

This state-federal division of regulatory authority distinguishes Rule 147 offerings from the NSMIA-preempted covered security status that attaches to offerings conducted in reliance on Regulation D exemptions such as Rule 506(b) and Rule 506(c), whose covered security status displaces state registration requirements notwithstanding their exempt status under federal law.

Amendment History and Regulatory Evolution

Rule 147's 2016 comprehensive modernisation represented the most significant revision to the rule since its 1974 original adoption, reflecting more than four decades of accumulated experience with the rule's doing-business and residency verification standards and the Commission's recognition that those standards required updating to accommodate internet-era capital formation practices, particularly the emergence of state-level intrastate crowdfunding frameworks that depend on Rule 147 compliance. 

The simultaneous introduction of Rule 147A alongside the Rule 147 modernisation reflected the Commission's judgment that a dual-pathway structure — preserving Rule 147's continuity with Section 3(a)(11)'s specific statutory text for issuers whose state law exemptions require that precise compliance, while creating a more flexible federal-only alternative in Rule 147A for issuers not so constrained — would best serve the diverse population of issuers and states relying on the intrastate offering exemption framework.

The January 2021 amendment's harmonising technical adjustments, made in connection with the Commission's parallel modernisation of Regulation D, Regulation A, and Regulation Crowdfunding, reflected the Commission's broader effort to create consistency across the exempt offering framework as an integrated whole, rather than addressing any specific identified deficiency in Rule 147's substantive conditions themselves.

Enforcement Context and SEC Action Patterns

Rule 147 enforcement and compliance scrutiny concentrates on the genuine intrastate character of both the issuer's business operations and its offering's actual purchaser base, examining whether the specific facts underlying an issuer's claimed satisfaction of the doing-business threshold and residency verification conditions reflect substantive compliance rather than technical or superficial conformity that obscures an offering in substance reaching a national or interstate investor base through online platforms and communications that exceed the rule's general solicitation restrictions.

State securities regulators play a particularly significant complementary enforcement role for Rule 147 offerings specifically, given both the continuing applicability of state blue sky registration and antifraud provisions to intrastate offerings notwithstanding the federal Section 5 exemption, and the direct dependence of many state intrastate crowdfunding exemption frameworks on issuers' genuine compliance with Rule 147's federal conditions as a foundation for the state exemption's own availability.

Examination Relevance and Key Takeaways

Rule 147 is examined at the Series 7 and Series 65 levels as the safe harbor for the statutory intrastate offering exemption of Section 3(a)(11), and as the first of the two federal intrastate exemptions alongside Rule 147A. Candidates should understand the four-part 80% doing-business threshold test, the in-state incorporation requirement that distinguishes Rule 147 from Rule 147A, the six-month resale limitation, and the general solicitation restriction that Rule 147 retains while Rule 147A relaxes.

The distinction between Rule 147's statutory tethering to Section 3(a)(11)'s specific text — which imposes the in-state incorporation requirement and general solicitation restriction as statutory constraints the rule cannot depart from — and Rule 147A's grounding in the Commission's general Section 28 exemptive authority is a consistently examined structural contrast at the Series 65 level, together with the practical guidance that issuers whose state law crowdfunding exemptions specifically require Section 3(a)(11) and Rule 147 compliance should use Rule 147 rather than Rule 147A.

The key points to retain are these. Rule 147 provides the safe harbor for Section 3(a)(11)'s statutory intrastate offering exemption, requiring that the issuer be incorporated or organized in, and doing business within, the offering state under a four-part 80% disjunctive threshold test; that sales be made only to in-state residents under a reasonable belief standard; that resales be confined to in-state residents for six months following the issuer's sale; and that the issuer avoid general solicitation or advertising reasonably likely to reach non-residents. 

The exemption is unavailable to registered investment companies. Rule 147 is unavailable to issuers not incorporated in the offering state, distinguishing it from the more flexible Rule 147A. Securities purchased under Rule 147 are not Rule 144 restricted securities but remain subject to the rule's own six-month resale limitation.

State blue sky registration and antifraud requirements continue to apply notwithstanding the federal exemption. Issuers relying on state law intrastate crowdfunding exemptions specifically conditioned on Section 3(a)(11) and Rule 147 compliance must use Rule 147 rather than Rule 147A. Rule 147 was originally adopted in 1974, comprehensively modernised effective April 20, 2017, and last amended January 14, 2021, with no further amendments through June 2026.