Privately owned businesses in Indiana will be able to raise investments online as part of a bill on the way to Gov. Mike Pence’s desk.
Senate Enrolled Act 375, which still needs Pence’s signature to become law, would mirror similar pending changes to federal law from the Jumpstart Our Business Startups, or JOBS, Act.
Both acts would loosen up rules for investing in private companies, allowing them to use a relatively new online practice known as crowdfunding. It first was popularized as a way to raise money for not-for-profits and art projects. Under the acts, investors would be able to buy small equity stakes in companies over the Internet.
The state bill cruised through the Indiana General Assembly in the recently finished short session. Both the Senate and House of Representatives passed it in February before amending the legislation last week.
The state bill “is complementary” to its federal equivalent, said its author, Sen. Travis Holdman, R-Markle.
One of the main differences between the state and federal crowdfunding bills involves who can invest.
The JOBS Act stipulates that anyone using crowdfunding for raising equity capital must offer their investment opportunities to the entire U.S. But the Indiana bill lets Hoosier businesses raise money just within Indiana.
The Invest Indiana Crowdfunding Exemption, Sec. 23-19-2-2(27), permits Indiana-organized entities to offer or sell securities for intrastate offerings to Indiana residents only. The exemption requires the Indiana-organized entity to file with the Indiana Securities Division SEC Form D, which clearly states “Indiana Only” on the first page, and to include a cover letter identifying that the filing is for the 23-19-2-2 (27) exemption, and to include a $100 filing fee. The Exemption details the requirements for both issuers and investors in regards to an Invest Indiana offering.
The offering material must include a deadline for the close of the offering. Investors have a 48-hour window before the identified deadline in which they can cancel their investment commitment for any reason.
An issuer may close prior to the deadline if the following four criteria are met:
1. The offering must be open a minimum of 21 days;
2. The operator of the website for the offering must provide notice to potential and investment committed investors that the deadline has changed;
3. The new deadline is at least five business days after the notice is provided to the Indiana Securities Division;
4. The issuer must meet or exceed the minimum target offering amount at the time of the new anticipated offering deadline.
In addition, the Issuer must disclose the following in their prospective investor-disseminated disclosure materials:
1. The expected proceeds from the offering to the issuer;
2. The intended use of the proceeds;
3. Estimated amount of proceeds used for each use identified in #2 above.
The issuer is also required to maintain an internet website. The operator of the website is required to register in Indiana and pay a $100.00 fee (If you are an operator of a website and a registered RIA or Broker/Dealer, the fee is waived). The operator must also:
1. Maintain a minimum $50,000 surety bond;
2. Be a United States citizen or a FINRA-approved non-resident funding portal;
3. Maintain all offering-related records for at least five years.
Lastly, the issuer is required to create a general announcement of the offering. This announcement is not considered an offer to potential investors if the announcement only contains:
1. A statement that the offering is being directed towards only Indiana residents;
2. A statement that the issuer is conducting an offering, including the operator of the website’s name and a link to the platform of the operator;
3. The maximum amount of the offering;
4. Information about the issuer including the issuer’s name, address, phone number, website, brief business description and representative’s email address.