The Federal Equity Crowdfunding Exemption The federal Securities Act provides an exemption from federal securities registration for securities sold through “crowdfunding,” the process by which a company solicits smaller dollar amount investments from a large number of non-accredited investors using social media and other online platforms. Several conditions apply: • The offering must be conducted by an SEC registered broker or an SEC registered funding portal. The offeror cannot advertise the terms of the offering except for notices which direct the investor to the broker or portal. • Investments collected by a portal must be held by an escrow agent separate from the portal. • The aggregate amount of investment offerings by a company cannot exceed $5 million in any 12 month period. • There are no investment limits for accredited investors. Investors who are not accredited may use the greater of their income or net worth to compute the maximum investment of $107,000. • The offeror must file with the Securities and Exchange Commission, and provide to investors, disclosures to be determined by Securities and Exchange Commission rules. The disclosures will address the nature of the company, its business plan, its financial condition, and the risks associated with investment. Depending on the size of the offering the offeror will also be required to provide tax returns and certified, reviewed, or audited financial statements. The Act provides that this kind of offering will be exempt from state registration or regulation. MINNESOTA BLUE SKY LAWS A company selling securities to residents of the state of Minnesota must comply with federal and state securities laws. State securities laws are collectively and individually referred to as “Blue Sky Laws.” These Blue Sky Laws vary among the states, sometimes to a significant degree. It is important to note that the Minnesota Legislature recently enacted a version of the Uniform Securities Act, which provides for substantial revisions to the current version of the Minnesota Securities Act. The Minnesota Uniform Securities Act (“MUSA”) became effective in August 2007. This section highlights the most frequently used exemptions from the securities laws of the state of Minnesota and summarizes certain changes that will result from the enactment of MUSA, where applicable. The securities laws of Minnesota require registration with the Minnesota Department of Commerce of all offers and sales of securities made to residents of Minnesota unless a particular exemption is available. If registration is required, it should be noted that, prior to the passage of MUSA, Minnesota was a “merit” review state, Minnesota is now a “disclosure” only state. Generally, this means that as long as the issuer satisfies the information disclosure requirements under MUSA, the Minnesota Department of Commerce cannot prohibit the issuer from selling its securities within the state.
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