Current through Register Vol. 41, No. 3, September 23, 2024
A. In accordance with §
13.1-514B
21 of the Act, an offer or sale of a security by an issuer is exempt from the
securities, broker-dealer and agent registration requirements of the Act if the
offer or sale meets all of the following requirements:
1. The issuer of the security is a business
entity:
a. Formed under the laws of the
Commonwealth; however, if conducting an offering in accordance with SEC Rule
147A, the issuer may be formed and organized outside the Commonwealth provided
the issuer meets one of the requirements as stated in subdivision 3 of this
subsection;
b. Authorized to do
business in the Commonwealth; and
c. That has its principal place of business
in the Commonwealth.
2.
The offering is sold only to residents of the Commonwealth in compliance with
the requirements for the federal exemption for intrastate offerings under
§ 3(a)(11) of the Securities Act of 1933,
15 USC
77c(a)(11), and SEC Rule
147,
17
CFR 230.147 or SEC Rule 147A. If an offering
is conducted by an issuer using SEC Rule 147A the offering may be made
available to residents outside the Commonwealth as long as the sale of the
security is made to residents of the Commonwealth.
3. Issuers utilizing SEC Rule 147A that are
not formed under the laws of the Commonwealth must meet one of the following
requirements of conducting business in the Commonwealth:
a. The issuer derived at least 80% of its
consolidated gross revenues from the operation of a business or of real
property located in the Commonwealth or from the rendering of services in the
Commonwealth.
b. The issuer had at
least 80% of its consolidated assets located in the Commonwealth.
c. The issuer intends to use and uses at
least 80% of the net proceeds from the offering toward the operation of a
business or of real property in the Commonwealth, the purchase of real property
located in the Commonwealth, or the rendering of services in the
Commonwealth.
d. A majority of the
issuer's employees are based in the Commonwealth.
4. The sum of all cash and other
consideration to be received for all sales of the securities in reliance on
this exemption does not exceed $2 million, less the aggregate amount received
for all sales of securities by the issuer within 12 months before the first
offer or sale made in reliance upon this exemption, and if the offering is:
a. $500,000 or less, if the issuer has
financial statements prepared the previous year that have been certified by the
principal executive officer of the issuer to be true and complete in all
material respects;
b. More than
$500,000 but less than $1 million, if the issuer has undergone a financial
review of the financial statements of its most recently completed fiscal year,
conducted by an independent certified public accountant in accordance with
generally accepted accounting principles; or
c. $1 million or more, if the issuer has
undergone an audit of the financial statements of its most recently completed
fiscal year, conducted by an independent certified public accountant in
accordance with generally accepted accounting principles.
5. The issuer has not accepted more than
$10,000 from any single purchaser unless the purchaser is an accredited
investor as defined by Rule 501 of SEC Regulation D,
17 CFR
230.501.
6. At least 20 days before an offer of
securities is made in reliance on this exemption or the use of any publicly
available Internet website in connection with an offering of securities in
reliance on this exemption, the issuer files with the commission in writing or
in electronic form, all of the following:
a. A
notice of claim of exemption from registration on Form ICE specifying that the
issuer intends to conduct an offering in reliance on this exemption,
accompanied by a nonrefundable filing fee of $250 payable to the Treasurer of
Virginia.
b. A copy of the
disclosure statement or Form ICE to be provided to prospective investors in
connection with the offering. The disclosure statement or Form ICE shall
contain all of the following:
(1) A
description of the issuer, including type of entity, the address and telephone
number of its principal office, its formation history, and its business
plan;
(2) A description of the
intended use of the offering proceeds, including any amounts to be paid, as
compensation or otherwise, to any owner, executive officer, director, managing
member, or other person occupying a similar status or performing similar
functions on behalf of the issuer;
(3) The identity of each person that owns
more than 10% of the ownership interests of any class of securities of the
issuer and the amount of said securities held by such person;
(4) The identity of the executive officers,
directors, or managing members of the issuer and any other individuals who
occupy similar status or perform similar functions in the name of and on behalf
of the issuer, including their titles and their prior business
experience;
(5) The terms and
conditions of the securities being offered including:
(a) The type and amounts of any outstanding
securities of the issuer;
(b) The
minimum and maximum amount of securities being offered, if any;
(c) Either the percentage ownership of the
issuer represented by the offered securities or the valuation of the issuer
implied by the price of the offered securities;
(d) The price per share, unit, or interest of
the securities being offered;
(e)
Any restrictions on transfer of the securities being offered; and
(f) A disclosure of any anticipated future
issuance of securities that might dilute the value of the securities being
offered;
(6) The
identity of any person that the issuer has or intends to retain to assist the
issuer in conducting the offer and sale of the securities, including the owner
of any websites, if known, but excluding any person acting solely as an
accountant or attorney and any employees whose primary job responsibilities
involve the operating business of the issuer rather than assisting the issuer
in raising capital;
(7) For each
person identified as required in subdivision 6 b (6) of this subsection, a
description of the consideration being paid to the person for such
assistance;
(8) A description of
any litigation or legal proceedings involving the issuer or any executive
officer, director, or managing member or other person occupying a similar
status or performing similar functions on behalf of the issuer;
(9) The issuer's financial statements for the
three most recent fiscal years or for as much time as the issuer has been in
existence, if less than three years;
(10) The name and address, including the
uniform resource locator, of each Internet website that will be used by the
issuer to offer or sell securities under an exemption under this section;
and
(11) Any additional information
material to the offering, including, if appropriate, a discussion of
significant risk factors that make the offering speculative or risky. This
discussion shall be concise and organized logically and may not be limited to
risks that could apply to any issuer or any offering.
c. An escrow agreement with a bank or other
depository institution located in this Commonwealth, in which the purchaser
funds will be deposited. At a minimum the escrow agreement shall provide that
all offering proceeds will be released to the issuer only when the aggregate
capital raised from all purchasers is equal to or greater than the minimum
target offering amount specified in the disclosure statement as necessary to
implement the business plan and all purchasers will receive a return of their
subscription funds if that target offering amount is not raised by the time
stated in the disclosure statement. The depository institution may contract
with the issuer to collect reasonable fees for its escrow services regardless
of whether the target offering amount is reached; however such fees shall not
be deducted from purchaser funds if the target offering amount is not raised by
the time stated in the disclosure statement. The issuer shall disclose in its
disclosure statement or Form ICE whether any interest earned on escrowed
purchaser funds will be paid to purchasers on a pro rata basis if the minimum
target amount, as described above, is not raised.
7. The issuer is not, either before or as a
result of the offering:
a. A company that is
engaged or proposes to engage in the business of investing, reinvesting,
owning, holding or trading in securities, including an investment company as
defined by
15 USC §
80a-3, or a hedge fund, commodity pool, or
similar investment vehicle;
b.
Subject to the reporting requirements of § 13 or 15(d) of the Securities
Exchange Act of 1934,
15 USC
78m and
78o(d);
c. A company that has not yet defined its
business operations, has no business plan, has no stated investment goal for
the funds being raised, or that plans to engage in a merger with or acquisition
of an unspecified business entity or entities, or without an allocation of
proceeds to sufficiently identifiable properties or objectives; or
d. A company that is engaged in or proposes
to engage in petroleum exploration or production, mining, or other extractive
industries.
8. The
issuer informs each prospective purchaser that the securities are not
registered under federal or state securities laws and that the securities are
subject to limitations on transfer or resale and displays the following legend
conspicuously on the cover page of the disclosure statement:
THESE SECURITIES ARE BEING SOLD IN RELIANCE ON AN EXEMPTION
TO THE FEDERAL SECURITIES REGISTRATION REQUIREMENTS UNDER SECTION 3(a)(11) OF
THE SECURITIES ACT OF 1933 [ OR SEC RULE 147A ] AND UNDER SECTION 13.1-514 OF
THE VIRGINIA SECURITIES ACT. THESE SECURITIES CAN ONLY BE SOLD TO RESIDENTS OF
VIRGINIA AND ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AS
CONTAINED IN SUBSECTIONS (e) AND (f) OF SEC RULE 147,
17
CFR 230.147 [ AND SUBSECTIONS (e) AND (f) OF
SEC RULE 147A ]. INVESTORS SHOULD BE AWARE THAT THEY WILL BE REQUIRED TO BEAR
THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME AND
THAT THEY MAY LOSE ALL OF THE INVESTMENT AND CAN AFFORD THE LOSS OF THE
INVESTMENT.
IN MAKING AN INVESTMENT DECISION, INVESTORS SHOULD RELY ON
THEIR OWN EXAMINATION OF THE ISSUER AND THE TERMS REVEALED IN THESE OFFERING
DOCUMENTS, INCLUDING THE MERITS AND RISKS INVOLVED.
THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR
STATE AUTHORITY OR REGULATORY COMMISSION NOR HAVE THESE ENTITIES CONFIRMED THE
ACCURACY OR DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
9. If the offer and sale of securities under
this section is made through the Internet, all of the following requirements
are met:
a. Any person acting as the Internet
website operator shall be an issuer, a registered broker-dealer, or a funding
portal that is in compliance with all commission, SEC, and FINRA requirements,
including, if it is a funding portal, making any required notice filings with
the commission;
b. Internet website
operators shall comply with all commission, SEC, and FINRA requirements
applicable to intrastate offerings through the Internet;
c. Internet website operators shall maintain
records of all offers and sales of securities effected through its Internet
website for five years from the close of the offering; and
d. The issuer and the Internet website
operator shall keep and maintain records of the offers and sales of securities
made through the Internet website for five years from the close of the
offering. The issuer and the Internet website operator shall promptly provide
ready access to the records to the commission on request. The commission may
access, inspect, and review any Internet website described in this subdivision
9 and its records.
10.
All payments for the purchase of securities are directed to and held by the
depository institution subject to the provisions of subdivision 6 c of this
subsection.
11. The issuer does not
pay, directly or indirectly, any commission or remuneration to an executive
officer, director, managing member, or other individual who has a similar
status or performs similar functions in the name of and on behalf of the issuer
for offering or selling the securities unless he is registered as a
broker-dealer agent under the Act. An executive officer, director, managing
member, or other individual who has a similar status or performs similar
functions in the name of and on behalf of the issuer is exempt from the agent
registration requirements of the Act if he does not receive, directly or
indirectly, any commission or remuneration for offering or selling securities
of the issuer that are exempt from registration under this section.
12. The issuer provides a copy of Form ICE or
the disclosure statement provided to the commission under subdivision 6 b of
this subsection to each prospective purchaser at the time the offer of
securities is made to the prospective purchaser.
13. The term of the offering does not exceed
12 months after the date of the first offer.
B. The issuer shall provide an annual report
to the issuer's purchasers for each of the issuer's next three fiscal years,
the first of which being that fiscal year that ends following the commencement
of the offering. All of the following apply to the annual report described in
this subsection:
1. The issuer shall provide
the report free of charge to the purchasers;
2. An issuer may satisfy the report
requirement under this subsection by making the information available on an
Internet website if the information is made available within 45 days after the
end of each fiscal year and remains available until the next annual report is
issued;
3. The issuer shall file
each report with the commission and shall provide a written copy of the report
to any purchaser on request; and
4.
The report shall include all of the following:
a. The compensation received by each director
and executive officer of the issuer, including cash compensation earned since
the previous report and on an annual basis and any bonuses, stock options,
other rights to receive securities of the issuer or any affiliate of the
issuer, or other compensation received; and
b. An analysis by management of the issuer's
business operations and financial condition.
C. The exemption provided in this section
shall not be used in conjunction with any other exemption under the Act, except
offers and sales to control persons shall not count toward the limitation in
subdivision A 4 of this section.
D.
The exemption described in this section shall not be available to the issuer if
the issuer, any of the issuer's predecessors, any affiliate of the issuer, or
any control person of the issuer:
1. Within
the past 10 years, has filed a registration statement that is the subject of a
currently effective registration stop order entered by any state securities
administrator or the SEC;
2. Within
the past 10 years, has been convicted of any criminal offense in connection
with the offer, purchase, or sale of any security, or involving fraud or
deceit;
3. Is currently subject to
any state or federal administrative enforcement order or judgment, entered
within the past 10 years, finding fraud or deceit in connection with the
purchase or sale of any security; or
4. Is currently subject to any order,
judgment, or decree of any court of competent jurisdiction, entered within the
past 10 years, that temporarily, preliminarily, or permanently restrains or
enjoins the party from engaging in or continuing to engage in any conduct or
practice involving fraud or deceit in connection with the purchase or sale of
any security.
E.
Subsection D of this section shall not apply if:
1. The party subject to the disqualification
is licensed or registered to conduct securities-related business in the state
in which the order, judgment, or decree creating the disqualification was
entered against such party;
2.
Before the first offer under this exemption, the state securities
administrator, or the court or regulatory authority that entered the order,
judgment, or decree, waives the disqualification; or
3. The issuer establishes it did not know and
exercising reasonable care, based on a factual inquiry, could not have known
that a disqualification existed under this subsection.
F. An Internet website through which an offer
or sale of securities under this section is made is not subject to the
broker-dealer or agent registration requirements of the Act if the Internet
website meets all of the following conditions:
1. It does not offer investment advice or
recommendations;
2. It does not
solicit purchases, sales, or offers to buy the securities offered or displayed
on the Internet website;
3. It does
not compensate employees, agents, or other persons for the solicitation or
based on the sale of securities displayed or referenced on the Internet
website; and
4. It does not hold,
manage, possess, or otherwise handle purchaser funds or securities.
G. As used in this section,
"financial review" means a limited inquiry and analytical procedure of much
narrower scope than an audit, undertaken by a certified public accountant for
the purpose of expressing limited assurance that financial statements are
presented in accordance with generally accepted accounting
principles.
H. As used in this
section, "control person" means
(i) an
officer, director, partner, managing member, trustee, or other person having
the power, directly or indirectly, to direct the management or policies of the
issuer, whether by contract or otherwise; or
(ii) a person that owns 10% or more of any
class of the outstanding securities of the issuer.
I. As used in this section, "funding portal"
means any person acting as an intermediary in a transaction involving the offer
or sale of securities for the account of others, solely pursuant to § 4(6)
of the Securities Act of 1933 that does not:
1. Offer investment advice or
recommendations;
2. Solicit
purchases, sales, or offers to buy the securities offered or displayed on its
Internet website or portal;
3.
Compensate employees, agents, or other persons for such solicitation or based
on the sales of securities displayed or referenced on its Internet website or
portal;
4. Hold, manage, possess,
or otherwise handle investor funds or securities; or
5. Engage in such other activities as the
SEC, by rule, determines inappropriate.
J. The issuer or other designated person
shall be notified by letter or electronic communication when the exemption
filing is effective. If, however, on or before the initial commencement date of
the offering, and after timely filing the materials required by subdivision A 6
of this section with the commission, the issuer has not been notified that any
one or more of the filed materials fails to conform to the requirements of this
section, the proposed offering shall be deemed effective.
K. Upon completion of an offering made in
reliance on this exemption, the issuer shall file a final sales report with the
commission, by letter or electronic communication, no later than 30 days after
the last sale in the offering that includes the following information:
1. The time period in which the offering was
open;
2. The number of investors
that purchased shares or units in the offering;
3. The dollar amount sold in the offering;
and
4. The dollar amount, if any,
returned to investors, purchasers, or subscribers.
Statutory Authority: §§
12.1-13
and
13.1-523 of the
Code of Virginia.
