Intrastate Offering Exemption in Texas
An intrastate offering is a securities offering made only to residents of a single state, such as Texas, by a company based and doing business there. Federal law exempts it under Section 3(a)(11) and the safe harbors in Rules 147 and 147A, but state law still applies, so a Texas offering needs a Texas exemption or registration. The business must meet tests on where its revenue, assets and proceeds are, and all purchasers must be Texas residents.
The federal exemption
Section 3(a)(11) of the Securities Act exempts offerings confined to a single state when the issuer is resident in and doing business in that state. Rules 147 and 147A provide safe harbors with objective tests. Rule 147 requires the issuer to be incorporated or organized in the state and to do business there. Rule 147A allows an issuer incorporated elsewhere, as long as its principal place of business is in the state, and permits offers to people in other states, though sales must be to residents of the offering state.
The doing-business tests
- At least 80 percent of consolidated gross revenue comes from the state, or
- At least 80 percent of consolidated assets are located in the state, or
- At least 80 percent of the offering proceeds will be spent in the state, or
- A majority of the issuer's employees are based in the state.
The issuer must meet one of these, and the principal place of business must be in the state.
Purchasers and resales
Every purchaser must be a resident of the state at the time of sale. The issuer should get written representations and check addresses. Securities sold in the offering generally cannot be resold to non-residents for six months, and the issuer should place legends and notices on the securities.
State law in Texas
| Federal | Texas |
|---|---|
| Section 3(a)(11) or Rule 147 or 147A exempt from SEC registration | The Texas Securities Act and rules still require registration or a Texas exemption, and anti-fraud rules apply |
Texas has several exemptions that may fit small local offerings, with conditions and notice requirements. Check them before you start.
Common traps
- Selling to one non-resident, which can break the exemption for the whole offering.
- Using the internet without checking whether Rule 147A fits.
- Not meeting the doing-business tests as the company grows or moves.
- Ignoring integration with other offerings. See offering integration rules.
Compare with Rule 504 and Rule 506.
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Book Free ConsultationFrequently asked questions
Can I advertise an intrastate offering?
Rule 147A allows offers to be made publicly, even online, as long as sales are made only to residents of the state.
Does a Texas LLC qualify automatically?
No. It must meet the doing-business tests and the principal place of business requirement.
Is there a dollar limit?
The federal exemption has no dollar limit, but state exemptions and registration may.
What if an investor moves out of Texas after buying?
Residency is measured at the time of sale. Resale restrictions then apply.