North Carolina has introduced a crowdfunding bill in the current session of the General Assembly. When it passes, it will establish and define an exemption for investment offerings by North Carolina businesses to North Carolina residents.
The bill essentially eliminated all the red tape of the federal crowdfunding exemption under Title III of the JOBS Act, but indeed to give crowdfunding a fair chance as a means by which startups and small businesses might raise investment capital.
Features of the North Carolina crowdfunding bill that make the exemption workable and thus worthy of support as a promising experiment:
1. There is no sliding scale and no need to prove a non-accredited investor’s net worth or income. Instead, there is a flat $2000 investment limit for non-accredited investors, per issuer. The bill thereby not only bypasses the inordinate confusion around Title III’s individual investment limitations, it also keeps issuers and portals out of unnecessary trafficking with sensitive personal financial information of every investor.
2. Audited financials are not required to raise up to $1 million. If an issuer has audited financials, the limit is $2 million, not $1 million.
3. The bill proposes to expressly protect issuers and entrepreneurs from lawsuits, except in the case of fraud. This is exactly the right call and absolutely essential in order to give an investment crowdfunding exemption a fair chance to prove it can work.
4. Regulators are given the authority to promulgate regulations that would construe the law, but regulators are not required to actually write regulations before the law would be effective. This is very smart. It means the bill, if passed, would become law and go into immediate effect, and would permit regulators to shape rules after the fact, and over time, in light of ongoing experience with actual use of the exemption.
5. There is no pre-filing notice requirement. Brilliant. Instead, notice is required once a 25th investor has signed on, or before general solicitation occurs, whichever is earlier. This appears to be designed to permit issuers to experiment, or quietly “test the waters.” That said, the bill would require websites raising money in reliance on the exemption to declare themselves to the state’s securities regulators in advance.
Review the current North Carolina Crowdfunding Exemption:
Here are just a few features for North Carolina crowdfunding included in the CrowdForce platform software:
• State residency self-verification
• Driver’s license upload for verification
• Setting funding limits for non-accredited investors
• Allowing accredited investor participation
• Complete and simple document signing and management
• Integrated ACH payments
• Plug in your state escrow account
• Plugin in your broker services for accredited investments
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