Supporting Statement for Rules 147A(f)(1)(iii).Final

SUPPORTING STATEMENT FOR THE PAPERWORK REDUCTION ACT
INFORMATION COLLECTION SUBMISSION FOR FINAL AMENDMENTS TO
RULES 147A(f)(1)(iii)
A.

JUSTIFICATION
1.

CIRCUMSTANCES MAKING THE COLLECTION OF INFORMATION
NECESSARY

Rule 147 contains “collection of information” requirements within the meaning of the PRA.
Specifically, Rules 147A(f)(1)(iii) contains a provision requiring issuers relying on the rule to
“obtain a written representation from each purchaser as to his or her residence
Rule 147A(f)(1)(iii) will require the issuer to obtain from the purchaser a written
representation as to the purchaser’s residency. The representation is not required to be presented in
any particular format, although it must be in writing. Representations obtained by the issuer are
not required to be kept confidential, and there is no mandatory retention period.
2.

PURPOSE AND USE OF THE INFORMATION COLLECTION

In order to qualify for the exemptions under Rule 147, the purchaser in the offering must be
a resident of the same state or territory in which the issuer is resident. Under the rule, an issuer
will satisfy this requirement by either the existence of the fact that the purchaser is a resident of the
applicable state or territory, or by establishing that the issuer has a reasonable belief that the
purchaser of the securities in the offering is a resident of such state or territory.
In addition, issuers will be required to obtain a written representation from each purchaser
as to his or her residence. While the formal representation of residency by itself is not sufficient to
establish a reasonable belief that such purchasers are in-state residents, the representation
requirement, together with the reasonable belief standard, may result in better compliance with the
final rules.
3.

CONSIDERATION GIVEN TO INFORMATION TECHNOLOGY

The collection of information requirements will not be provided to the Commission, either
electronically or otherwise.
4.

DUPLICATION OF INFORMATION

We are not aware of any rules that conflict with or substantially duplicate Rule
147A(f)(1)(iii).
5.

REDUCING THE BURDEN ON SMALL ENTITIES

Rule 147A(f)(1)(iii) is designed to streamline and modernize the intrastate offering
exemption for all issuers, both large and small. The written representation requirement contained
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in Rule 147A(f)(1)(iii) will apply to all issuers, including small entities. While the Commission
does not collect data on the number and size of Rule 147 offerings or the type of issuers currently
relying on the Rule 147 safe harbor, the nature of the eligibility requirements and other restrictions
of the rule lead us to believe that the adopted rules will be used by U.S. incorporated entities that
are likely small businesses seeking to raise small amounts of capital locally without incurring the
costs of registering with the Commission.
In connection with amended Rule 147, we do not think it feasible or appropriate to establish
different compliance or reporting requirements or timetables for small entities. The rule is
designed to facilitate access to capital for both large and small issuers, but particularly smaller
issuers who may satisfy their financing needs by limiting the sales of their securities only to
residents of the state or territory in which the issuers are resident. The written representation
requirement contained in Rule 147A(f)(1)(iii) is designed with the limited resources of smaller
issuers in mind.
6.

CONSEQUENCES OF NOT CONDUCTING COLLECTION

The purpose of the written representation requirement contained in Rule 147(f)(1)(iii) is to
require all issuers conducting these intrastate offerings to obtain a consistent piece of evidence of
each purchaser’s residency. Obtaining a written representation from a purchaser of in-state
residency status will not, without more, be sufficient to establish a reasonable belief that such
purchaser is an in-state resident.
In addition to the written representation, other facts and circumstances could include, but
will not be limited to, for example, a pre-existing relationship between the issuer and the
prospective purchaser that provides the issuer with sufficient knowledge about the prospective
purchaser’s principal residence or principal place of business so as to enable the issuer to have a
reasonable basis to believe that the prospective purchaser is an in-state resident. An issuer may
also consider other facts and circumstances when establishing the residency of a prospective
purchaser, such as evidence of the home address of the prospective purchaser, as documented by a
recently dated utility bill, pay-stub, information contained in state or federal tax returns, any
documentation issued by a federal, state, or local government authority, such as a driver’s license
or identification card, or a public or private database that the issuer has determined is reasonably
reliable, including credit bureau databases, directory listings, and public records.
7.

SPECIAL CIRCUMSTANCES

There are no special circumstances with this information collection.
8.

CONSULTATIONS WITH PERSONS OUTSIDE THE AGENCY

No comments were received during the 60-day comment period prior to OMB’s review of
this submission.
9.

PAYMENT OR GIFT TO RESPONDENTS

No payment or gift to respondents.
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10.

CONFIDENTIALITY

Rule 147A(f)(1)(iii) is not filed with the Commission.
11.

SENSITIVE QUESTIONS

No information of a sensitive nature is required under this collection of information. The
information collection for the written representation requirement contained in Rule 147A(f)(1)(iii)
collects basic Personally Identifiable Information (PII) that may include name, business address,
and residential address.
12. ESTIMATES OF RESPONDENTS REPORTING BURDEN
We estimate that 700 respondents (i.e., issuers) will conduct offerings under Rule 147 each
year, and therefore must comply with Rule 147A(f)(1) (iii) by obtaining written representations
from each purchaser in the offering as to his or her residence. We estimate that it takes
approximately 0.25 hours (15 minutes) for issuers to obtain written representations from all
purchasers in each offering as to their residence for an aggregate annual burden of 175 issuer
burden hours for compliance with the requirement in Rule 147A(f)(1)(iii). We derived our burden
hour estimates by estimating the average number of hours it would take an issuer to compile the
necessary information and data, prepare and review disclosure, file documents and retain records.
In connection with rule amendments to the rule, we occasionally receive PRA estimates from
public commenters about incremental burdens that are used in our burden estimates. We recognize
that the burden will likely vary among issuers based on the size of their offerings and the number
of purchasers acquiring securities in their offerings and between natural person and legal entity
purchasers. We believe that some will experience burdens and costs in excess of these estimated
averages and others may experience less than these estimated average burdens and costs. For
administrative convenience, the total burden hours have been rounded to the nearest whole
number. The estimated burden hours are made solely for the purpose of the Paperwork Reduction
Act.
Similarly, we anticipate that the written representation required by purchasers, including the
obligation to determine the state or territory of their residence, as required under Rule
147A(f)(1)(iii), will result in a burden incurred by purchasers in order to purchase securities in an
exempt intrastate offering pursuant to Rule 147A(f)(1)(iii). For purposes of the PRA, we estimate
that the total annual paperwork burden for all affected purchasers arising from these collections of
information requirements will be approximately 1,750 hours of purchaser time and no cost incurred
for the services of outside professionals. Specifically, we estimate each purchaser will spend an
average of approximately fifteen minutes preparing a written statement of residency to provide to
the issuer and will incur no cost for the services of outside professionals to satisfy this requirement,
resulting in an aggregate of 2.5 hours of purchaser time per offering and an aggregate annual
burden of 1,750 purchaser hours (an average of 2.5 hours for each of the estimated 700 offerings
per year pursuant to Rule 147) for compliance with the requirement in Rule 147A(f)(1)(iii).

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13, ESTIMATE OF TOTAL ANNUALIZED COST BURDEN
We estimate each of the approximately 700 issuers will retain outside professional firms to
spend an average of fifteen minutes helping the issuer comply with the requirement in Rule
147A(f)(1)(iii) to obtain and collect the written statement of residency from each purchaser in the
offering at an average cost of $400 per hour, resulting in a cost of $100 per issuer and an aggregate
annual cost of $70,000 for all issuers to comply with this requirement of Rule 147. In addition, we
estimate that there is no cost to the purchaser to provide the issuer with a written statement of
residency. We estimate an hourly cost of $400 for outside legal and accounting services used in
connection with public company reporting. This estimate is based on our consultations with
registrants and professional firms who regularly assist registrants in preparing and filing disclosure
documents with the Commission. Our estimates reflect average burdens, and therefore, some
companies may experience costs in excess of our estimates and some companies may experience
costs that are lower than our estimates. For administrative convenience, the presentation of the
totals related to the paperwork burden hours have been rounded to the nearest whole number and
the cost totals have been rounded to the nearest dollar. The cost estimate is made solely for the
purpose of the Paperwork Reduction Act.
14.

COSTS TO FEDERAL GOVERNMENT

The annual cost of reviewing and processing disclosure documents, including registration
statements, post-effective amendments, proxy statements, annual reports and other filings of
operating companies amounted to $102 million in fiscal year 2018, based on the Commission’s
computation of the value of staff time devoted to this activity and related overhead.
15.

REASON FOR CHANGE IN BURDEN

There is no change in burden.
16.

INFORMATION COLLECTION PLANNED FOR STATISTICAL
PURPOSES

The information collection is not planned for statistical purposes.
17.

APPROVAL TO OMIT OMB EXPIRATION DATE

The Commission is not seeking approval to omit the expiration date for OMB approval.
18.

EXCEPTIONS TO CERTIFICATION FOR PAPERWORK
REDUCTION ACT SUBMISSIONS

There are no exceptions to certification for Paperwork Reduction Act submissions.
B.

STATISTICAL METHODS
The information collection does not employ statistical methods.
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