At the end of October, the SEC approved Title III of the JOBS Act making it possible for US retail investors to participate in online investing offerings of SMEs in search of equity capital, no matter in which state they are based. However, one could legitimately ask: how will this affect intrastate crowdfunding?
However, now that Title III is implemented and equity crowdfunding is possible at federal level, what will happen to intrastate crowdfunding rules? Well, they will continue to exist and it will still be possible for companies to conduct an offering at intrastate level.
Nevertheless, in the same session that approved Title III, the SEC has also proposed a few amendments to rule 147, which is the basis of intrastate crowdfunding. In particular, the SEC proposed the following points:
- Eliminate the restriction on offers, while continuing to require that sales be made only to residents of the issuer’s state or territory. This means that with this amendment, it would be possible for companies to reach with their offerings non-resident citizens too, through any mean or media- included the internet and social media -. However the actual sale of share would remain limited to state-resident investors.
- Refine what it means to be an intrastate offering and ease some of the issuer eligibility requirements in the current rule. In particular, the company does not longer need to be incorporated in the state where it wants to conduct the offering, but it is sufficient that the region is its principal place of business. This is determined when one of the following four conditions is respected:
- 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;
- 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;
- 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; or
- A majority of the Issuer’s employees are based in such state or territory.
- Limit the availability of the exemption to offerings that are registered in-state or conducted under an exemption from state law registration that limits the amount of securities an issuer may sell to no more than $5 million in a 12-month period and imposes an investment limitation on investors (i.e. intrastate crowdfunding regulations).
The SEC is looking for public comments on these proposed rules until end of December. Should these amendments enter into effect, intrastate crowdfunding would become an easier solution to raise capital. However, one could still ask: why would a company prefer conducting an intrastate crowdfunding offering rather than a federal one? There are probably several answers to this. We can imagine two: one could be that the company wants its investors to be also State residents, so to mitigate NIMBY logics, for example; the other, instead, could simply be that it aims at raising more than $1 million, which is the cap for federal online investing offerings.
SEC Adopts Rules to Permit Crowdfunding. www.sec.gov
Zeoli, A. (2015).SEC Proposes Sweeping Amendments To Rule 147 To Facilitate Intrastate Crowdfunding: Why They May All Be Moot. Crowdfundinsider
About the author - Irene Tordera
Born and raised in Milan, Italy, Irene is an International Business graduate, with a strong interest for innovative ideas that can simplify our lives.
During her studies, she co-founded an online community for sportspeople and worked in marketing positions at Ogilvy & Mather Advertising and at the European Business Angel Network, in Brussels. She is a passionate blogger about crowdfunding and the startup ecosystem and she works also for the European Crowdfunding Network.