Since legislation passed in October of 2014, Maryland crowdfunding states that businesses can now raise up to $100,000 annually from state resident investors in $100 increments, with equity or debt stake in exchange. While the limits are at a much lower level than the planned federal Title III, this bill still allows businesses to creatively raise funds, while minimizing risks to local investors.
A $100 investment is minimal enough that even customers of a business who is crowdfunding may invest simply as a sign of support. The Maryland legislature hopes that passing this bill will foster closer ties in the community, and also allow businesses and investors both to gain.
Conversely, the District of Columbia is deciding on a more aspiring plan. New rules proposed would, if accepted, allow businesses to crowdfund up to $2 million from local residents. The limit on individual investment would be calculated by income, starting at $10,000 for investors who earn less than $100,000 annually.
Maryland crowdfunding, as well as intrastate crowdfunding solutions have drawbacks, however. Securities cannot be sold across state lines, because there are no federal regulations governing their purchase or sale. An example is Virginia’s General Assembly which declined to pass a crowdfunding bill, fearing that businesses would end up selling their securities outside the state in violation of federal law. The SEC has not announced a timetable for issuing Title II of the Jobs Act. Until the federal government acts, businesses can only use Maryland crowdfunding with in-state investors.
Although the Maryland crowdfunding law is relatively limited in terms of fundraising amounts and advertising of offerings, the regulations also call for corporate disclosures that are greatly simplified and less burdensome than other states. Like all states, Maryland’s rules contain disqualification provisions to prevent certain “bad actors” from using the exemption to defraud investors. Investors in Maryland crowdfunding deals will not be able to resell the securities they purchase, so there is not an opportunity for typical “trading.”