Guest Blog: Legally Speaking

SEC rule changes make it easier for small businesses to raise capital

By Carrington, Coleman, Sloman & Blumenthal, LLP

Rule changes made by the Securities and Exchange Commission have expanded the capital-raising avenues available to small businesses while still offering investor protections.

One of the most advantageous opportunities for certain small businesses comes via changes to Rule 504 of Regulation D, or what most investors and business owners simply call “Reg D,” which is a portion of the Jobs Act.

Raising capital is one of the biggest challenges for entrepreneurs who may have a great idea but need capital to fund the idea. These rule changes, originally made in 2016 and amended in 2017, provide an exemption in which certain small businesses no longer have to register their offering of securities with the SEC. Instead, they must file what’s known as a Form D electronically with the SEC after they’ve sold their securities.

The effect of these changes has been to put capital-raising in the hands of Main Street — effectively making the process of raising capital much less cumbersome and less expensive for small businesses and startups. Further adjustments made this year to Rule 504 of Reg D increase the aggregate amount of securities that may be offered and sold in a 12-month period to $5 million, up from $1 million.

The final rules also repealed Rule 505, which was deemed no longer necessary due to changes in Rule 504. The SEC also modernized Rule 147 under the Securities Act of 1933 and established a new intrastate offering exemption under Rule 147A.

Rule 147 essentially provides a safe harbor for the intrastate exemption from registration under the Securities Act. To qualify, an issuer must have its principal place of business in the state in which it is offering and selling securities, and limit offers and sales of securities to that state’s residents. To be a principal place of business, the company must have at least 80% of its operations in that state. There’s no general solicitation or general advertising allowed under this rule.

Rule 147A allows securities offers to be made accessible to out-of-state residents, as long as the actual sales are limited to in-state residents. Issuers may be incorporated or organized out-of-state as long as their principal place of business is located in the state in which the securities are sold. It may sound a bit confusing, but here’s an example of how it works: A Delaware corporation could rely on Rule 147A to offer and sell securities in Texas if its “principal place of business” is located in Texas and all sales are made to Texas residents.

The SEC’s amendments to Rule 147 and the new Rule 147A took effect in April 2017.

This blog is merely a snapshot of rule changes under Rule 504, Rule 147, and Rule 147A, without all the nuanced detail. It does not constitute legal advice, nor does it create an attorney-client relationship. Certainly, staying in compliance with federal securities laws can be a complicated matter and one in which a business owner will want to consult their attorney.

If you’d like to explore these changes and how they might affect a capital-raising event for your business or startup, please contact me.


Bret A. Madole is a partner in the Dallas office of Carrington Coleman and chairs the corporate, mergers and acquisitions, corporate finance and banking practice groups at Carrington Coleman. He can be reached at 214.855.3034 or