Securities may be sold without first being registered with the Securities and Exchange Commission if one of several exemptions applies. An exemption does not allow the use of any false or misleading statements in the offer or sale of the securities, and the offering may still be subject to requirements under state laws. However, if an exemption is applicable, then the expense and burden of the initial registration and periodic reporting of substantial information about the company may be avoided.
The Securities Act of 1933 contains an intrastate offering exemption to allow greater ease of financing of business operations that remain substantially local. The exemption from registration requirements applies to an offering of securities by a company that is incorporated in the state where the securities are offered. A significant amount of the company’s business must be carried out in that state, and the offering must be made only to residents of the state.
The intrastate offering exemption does not set a limit on the size of the offering or on the number of purchasers of the securities. However, if an offer or sale to just one out of state person occurs, the exemption may be lost. Also, a resale of any of the securities to a person residing outside the state within nine months after completion of the company’s offering could put the entire offering and all the sales of the offering in violation of the Securities Act.
In order to meet the requirements of the intrastate offering exemption, a company must take care to know who is buying the shares being offered for sale. Also, the company will have to take care that resales do not occur within a short period of time after completion of the offering. Finally, the company must make sure that its assets are maintained within the state. While some portion of the company’s revenues may be derived from out of state, the intrastate offering exemption may be lost if such revenues become a substantial portion of the company’s total revenues.