It’s a brave new world in the arena of raising money for your startup or established business. Crowdfunding is hitting the web, and it is already available to North Carolina businesses, with even more opportunities coming over the next few months.
Below is a summary of the new crowdfunding laws and the opportunities they offer to North Carolina businesses.
Federal Crowdfunding Portal
The Securities and Exchange Commission (SEC) has implemented and launched the process for federal crowdfunding raises. Sites such as WeFunder are already raising money for businesses through this new law. Under the federal law, businesses may target the general public to solicit investment through these regulated portals for the first time ever.
There is a maximum of $1 million that any company can raise within a twelve month period. Additionally, for investors with an annual income or net worth of less than $100,000, the maximum investment in a crowdfunded company is the greater of $2,000 or 5% of such income or worth. For those with income and net worth greater than $100,000 (presumed to be more sophisticated investors), the limit is 10% of the lesser of income of worth, capped at a $100,000 investment.
The company seeking funding must still make some disclosures to the SEC and to the public, including certified, reviewed, or audited financials, depending on the amount of investment sought. A Form C must be filed with the SEC with further information and disclosures relevant to the offering.
Importantly, however, this federal law preempts state securities regulation in the area, meaning if a company meets the requirements to raise money under the federal provision, there will likely be no need for any state filing.
North Carolina Crowdfunding
For those companies that may not fit with the federal option, North Carolina’s version of this law will be fully implemented in early 2017. This will offer North Carolina businesses an alternative to the federal crowdfunding option, by raising money on a separate online portal that targets investors within the state.
Many of the same income-based provisions and company disclosures apply, however the maximum amount that can be raised in a twelve month period will be $2 million.
Also, because the North Carolina implementation relies on the 3(a)(11) Intrastate Exemption from federal securities registration, those companies that raise funds under this option will not need to register or file under federal law.
Other Options for Fundraising
If the new crowdfunding options do not sound appealing for your business or venture, there are still alternatives that exist under state and federal law.
A Regulation D offering has long been a popular method for small and mid-sized business to raise investment capital without having to comply with the burdensome requirements of a full public offering. This method will require a disclosure filing with the federal government and a notice filing with the state in which you do business.
With several options for crowdfunding now on the table, and more coming down the pipeline, it is an exciting time for North Carolina businesses and startups. It is not too early to begin developing a plan for crowdfunding of your business, while trying to get the proper financials and documents ready for filing. As a part of this, you may find it advantageous to retain an accountant and attorney who are familiar with securities matters and can guide you through the process. At Merithew Law, we offer comprehensive services related to business crowdfunding. If you have any questions, reach out to us.