casemark/intrastate-offering

Intrastate Offering Compliance (Rule 147/147A)

One out-of-state sale destroys the exemption — potentially retroactively for all investors. Unlike Rule 506, no NSMIA preemption exists; the issuer must also satisfy full state registration. This skill prevents the common failures: inadequate residency verification, uncontrolled advertising reach, failed doing-business tests, and integration with concurrent offerings.

Intake (Mandatory)

Gather before drafting unless the user says "use defaults" or "just draft":

1. Issuer details — state of formation, principal office, org chart
2. Operations by state — revenues, assets, employees, locations; current financials
3. Offering terms — security type, size, pricing, use of proceeds, escrow, commissions
4. Draft materials — term sheet, offering document, subscription agreement, marketing copy
5. Distribution plan — channels, internet use
6. Residency verification process — online/offline workflow, document retention
7. Prior and planned offerings — types, dates, investor pools (6-month look-back/forward)
8. State blue sky rules — registration forms, examiner guidance, filing requirements

Defaults if no response: Rule 147A; registration by qualification; standard residency documentation. Label all defaults.

Step 1: Select Safe Harbor (Rule 147 vs. 147A)

| Factor | Rule 147 [VERIFY] | Rule 147A [VERIFY] | Decision | |---|---|---|---| | Issuer formation | Must be in offering state | Out-of-state OK | Formed elsewhere → 147A | | Principal place of business | Required | Required | Document "nerve center" | | General solicitation | Restricted | Permitted with legends | Broad internet → 147A | | Offers to out-of-state | Risky | OK if sales in-state only | Confirm offer definition |

Verify current text: 17 CFR 230.147, 230.147A, 230.152; Securities Act §§ 3(a)(11), 5, 17(a) [VERIFY].

Step 2: Analyze Doing-Business Tests

All four must be met. Document evidence for each:

| Test [VERIFY] | Threshold | Evidence | |---|---|---| | Revenue | ≥ 80% in-state | Revenue by customer/location | | Assets | ≥ 80% in-state | Balance sheet, fixed asset register | | Proceeds | ≥ 80% used in-state | Use-of-proceeds budget and tracking | | Employees | Majority in-state | Payroll and headcount by state |

Step 3: Build Residency Verification Protocol

| Investor Type | Standard [VERIFY] | Minimum Documents | |---|---|---| | Individual | Principal residence in state | Driver license + utility bill or tax record | | Entity | Principal place of business in state | Operating agreement + business address proof | | Entity formed for offering | Look-through to owners | Residency docs for all beneficial owners |

• Require documentary proof before subscription acceptance; retain in investor file
• IP checks and online gating are supplemental only — not sufficient alone
• Apply look-through for entities formed to purchase the securities

Step 4: Advertising and Offer Controls

• Place legends on all materials and landing pages
• Gate access to offering materials by state before disclosure
• No paid ads targeting beyond the offering state
• Train all personnel: no discussions with non-residents
• Preserve copies of all ads, targeting settings, and gating records

Step 5: Resale Restrictions and Transfer Controls

• Restricted period: six months from issuer sale [VERIFY]
• Restrictive legends on certificates or book-entry statements
• Stop-transfer instructions to transfer agent or internal ledger
• Require approval of any transfer during restricted period

Legend template:

THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. FOR A PERIOD OF SIX MONTHS FROM THE DATE OF SALE BY THE ISSUER, ANY RESALE MUST BE MADE ONLY TO PERSONS RESIDENT WITHIN THE STATE OF [STATE]. ANY TRANSFER IN VIOLATION OF THIS RESTRICTION IS VOID.

Subscription representation template:

Subscriber represents that Subscriber's principal residence (or principal place of business) is in the State of [STATE], and agrees to provide documentation reasonably requested to confirm residency. Subscriber acknowledges the securities are restricted and may not be transferred to non-residents during the applicable restricted period.

Step 6: Integration Risk and State Registration

Integration analysis:

| Item | Risk | Mitigation | |---|---|---| | Recent offerings | Integration with intrastate | Rule 152 framework and spacing [VERIFY] | | Concurrent offerings | Confusing investor pools | Separate materials and investor lists | | General solicitation elsewhere | Contaminates intrastate | Pause or segregate campaigns |

State registration by qualification:

• Confirm registration path under state law [VERIFY]
• Assemble forms, consents to service, filing fees
• Confirm financial statement and audit requirements [VERIFY]
• Address merit review: escrow, commissions, pricing, dilution
• Align offering document, state forms, and marketing materials
• Pre-clear advertising if required [VERIFY]

Step 7: Deliverables

1. Compliance memo — rule selection, eligibility, residency controls, advertising controls, resale restrictions, integration analysis
2. Execution checklist for issuer and counsel
3. Legend and subscription representations
4. State registration filing checklist
5. Assumptions, open items, and risk flags

Every output must begin with:

• Assumptions — rule selected, doing-business test results, residency standard
• Open Items — missing financials, unresolved state requirements, [VERIFY] items

Contingencies: Reject non-resident subscriptions and document; if residency error discovered, consult counsel immediately; if controls are unenforceable, recommend alternative exemptions.

Post-Draft Alignment (Mandatory)

After delivering, ask:

1. Are doing-business calculations confirmed against current financials?
2. Is the advertising/distribution plan finalized?
3. Should residency verification be tested with a sample workflow?
4. Are there concurrent or recent offerings needing integration analysis?

Checks and Pitfalls

Quality gate — verify before finalizing:

• Safe harbor selection documented with rationale
• All four doing-business tests analyzed with evidence
• Residency protocol requires documentary proof
• Legend language matches correct rule and state
• Advertising controls enforceable for planned channels
• Integration analysis covers 6-month look-back and look-forward
• State registration path confirmed with forms and fees
• Subscription representations match legend language
• All citations verified or flagged [VERIFY]
• Assumptions and open items listed prominently

Rules:

• Output is not legal advice; attorney review required before use
• Mark unverified rule text, thresholds, or dates with [VERIFY]
• Resolve federal vs. state conflicts in favor of the more restrictive rule
• If controls cannot be enforced, recommend a different exemption
• Maintain single source of truth across forms, disclosures, and marketing
• Flag broker-dealer or finder compensation for separate review
• Do not fabricate rule thresholds, state requirements, or registration procedures — every citation must be verified or flagged
• Treat confidentiality and truthfulness as mandatory (Model Rules 1.1, 1.3, 1.6, 3.3, 4.1) [VERIFY]