In yesterday's post, I dipped into the SEC's proposed amendments to Rule 147, a safe harbor for intrastate offerings exempt from registration pursuant to Section 3(a)(11) of the Securities Act of 1933.  Among other things, the SEC is proposing to jettison the current requirement of Rule 147 that limits the availability of the rule to issuers organized in the state in which an offering takes place.  As proposed, an issuer will be deemed to have its principal place of business in a state or territory in which the officers, partners or managers of the issuer primarily direct, control and coordinate its activities.  In addition, the issuer must satisfy at least one of the following requirements:

• At least 80% of the issuer's consolidated gross revenues is derived from the operation of a business or of real property located in or from the rendering of services within that state or territory;
• At least 80% of the issuer's assets and those of its subsidiaries on a consolidated basis were located within that state or territory at the end of its most recent semi-annual fiscal period prior to an initial offer of securities in any offering or subsequent offering pursuant to Rule 147;
• The issuer intends to use and uses at least 80% of the net proceeds to the issuer from sales made pursuant to Rule 147 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 that state or territory; or
•  A majority of the issuer’s employees are based in that state or territory.

This is a significant relaxation of the current "doing business" requirement currently in Rule 147.  However, it would retain the 80% doing business thresholds found in the current rule even though Section 3(a)(11) has no supermajority threshold - referring only to "doing business" in the state. In the proposing release, the SEC's vaguely asserts "if issuers with widely distributed assets and operations over more than one state make use of amended Rule 147, state oversight of such issuers could weaken, with a consequent decrease in investor protection."  The SEC doesn't explain why or how state oversight would be weakened.  California's Corporate Securities Law is triggered by the offer and sale of a security "in this state", not whether the issuer is conducting business in this state.  See Cal. Corp. Code § 25008.  Of course, an issuer's business activities may be subject to other laws and regulations to the extent that it occurs in the state.

Lowering the thresholds to more than 50% would ensure that no other state or combination of other states has a greater nexus to an issuer.  But why stop there?  A plurality requirement would ensure that at least one state has a greater nexus to the issuer than any other state.