Massachusetts crowdfunding finally realized

There is a large undercurrent underway that began with federal signing of the JOBS Act, and which will eventually allow everyday investors purchase equity stock in private companies. This broader movement is part of crowdfunding, which uses the web portals to collate groups of businesses or investors who can fundraise large sums of money through a large sum of smaller contributions.

Businesses and investors are waiting anxiously for the SEC to finish regulations that will put the national law into effect. But until the SEC acts, private businesses are generally only allowed to raise capital from “accredited” (high net-worth) investors, which are those whose income is at least $200,000 per year or have a net worth of $1 million.

However, state officials have begun losing patience with the SEC and have begun loosening their own regulations, by giving businesses the chance to raise capital from smaller state resident investors within their own states. Roughly 17 states have jumped at the chance to legalize “equity crowdfunding” within their borders.

Massachusetts joined this group of states in January 2015 by announcing the new Massachusetts crowdfunding bill.

The new exemption will allow Massachusetts businesses to more easily use web portals to raise capital which, in turn, will give a boost to the state’s economy and create job growth here. A carefully crafted regulation such as the Massachusetts crowdfunding bill also offers protections for both resident investors and businesses using this this method of capital raising.

There are restrictions. Businesses are limited to $1 million in crowdfunding capital raises in a year, or $2 million if the company’s financial statements are audited and made public.

Massachusetts residents whose income and net worth are less than $100,000 can invest either $2,000 or 5% of their income or net worth to each crowdfunding deal, whichever is larger. For investors whose income is above that $100,000 threshhold, the individual investment limit is $100,000.