As non-accredited investor crowdfunding has been stalled in the regulatory process at the federal level under Title III of the Jobs Act, approximately 17 individual states have launched their own initiatives recognizing the benefits to small businesses and local economies, with another 23 with proposed legislation in process. The number one challenge for new companies is access to capital. Simplifying this process by reducing burdensome regulations is anticipated to help in growing local economies.
1. Only within the state: Under the new regulations, the Alabama crowdfunding exemption assists companies to raise money from investors who are Alabama residents. Further, any for-profit corporation or business cooperative that wants to invest in a business via crowdfunding must be also based in Alabama and registered with the Secretary of State’s office. Entrepreneurs can only solicit investment from Alabama residents.
2. Amounts: A crowdfunding campaign may not exceed $1 million in one calendar year. There is a cap limit of $5,000 from any single investor, unless that individual or organization is an accredited investor (high net worth individual).
3. Brokers: Companies may crowdfund for capital from “main street” investors in Alabama with or without a broker. If brokers are used, they must be registered with the ASC.
4. Defaults: If you’ve been convicted of a felony involving dishonesty, or if you are subject to bankruptcy or have been expelled from the securities industry in any capacity, you can’t raise money through Alabama’s crowdfunding law.
5. Escrow: All investment dollars received from crowdfunding investors may only be held in a bank or other financial institution that is authorized to do business in Alabama.
This is only an overview of the new law. The legislation passed both the House and Senate without any dissent. The Alabama crowdfunding law was publicly supported by the Alabama Securities Commission, a progressive move by the state.