Many issuers continue to rely on California's limited offering exemption to avoid the necessity of qualifying the offer and sale of their securities. The exemption, found in Corporations Code Section 25102(f), requires that sales be made to not more than 35 persons. Thus, it is important to know who counts and who doesn't.
Many out of state attorneys are surprised to learn that California counts persons not in the state, but that counting rule is clearly expressed in Section 25102(f)(1) ("Sales of the security are not made to more than 35 persons, including persons not in this state."). Even persons who aren't U.S. citizens or who don't maintain a permanent residence in the U.S. are counted toward the 35-person limitation.
Offerees, on the other hand, don't count at all. The only limitation on the number of offerees is the indirect limitation imposed by the requirement that there be no publication (defined in Section 25014) of an advertisement (defined in Section 25002).
Some persons count as one person. Section 25102(f)(4) provides that (i)a husband and wife (together with any custodian or trustee acting for the account of their minor children) are counted as one person; and (ii) a partnership, corporation, or other organization that was not specifically formed for the purpose of purchasing the security offered in reliance upon this exemption, is counted as one person.
But other joint owners count. Pursuant to Rule 260.102.12(c), each person who takes joint ownership with another must be counted as one (except as provided in Section 25102(f) (see above)).
Finally, the Commissioner has adopted a rule, 260.102.13, that lists a number of persons who don't count. These include persons who comes within one of the categories of an “accredited investor” in Rule 501(a) of Regulation D adopted by the Securities and Exchange Commission under the Securities Act of 1933.