Massachusetts Adopts Emergency Crowdfunding Exemption
The Massachusetts Division of Securities has adopted an emergency intrastate crowdfunding exemption. The new exemption was developed to stimulate job growth for small Massachusetts companies by removing restrictions and allowing greater access to capital with fewer restrictions.
The Massachusetts Emergency Crowdfunding Exemption
The new exemption is available to entities formed and operating in Massachusetts, and allows the issuers to:
- offer both equity and debt securities on the Internet; and
- raise up to $1 million if the issuer did not provide its most recent fiscal year’s GAAP-prepared financial audit to the Massachusetts Securities Division and prospective investors, or up to $2 million if the issuer did make its most recent fiscal year’s GAAP-prepared financial audit available. The Massachusetts intrastate crowdfunding exemption permits Massachusetts residents to invest up to:
- $2,000 or 5 percent of the investor’s annual income or net worth (whichever is greater) if both the annual income and net worth are less than $100,000; and
- the greater of 10% of the investor’s annual income or net worth, and no more than $100,000, if the investor’s annual income or net worth is $100,000 or more.
Qualifications and Disqualifications of the Massachusetts Crowdfunding Exemption
For a company to be eligible for the Massachusetts crowdfunding exemption, it must be incorporated, authorized to do business, and have its principal place of business in Massachusetts.
In addition to complying with Massachusetts requirements, issuers must ensure that their transactions comply with Section 3(a)(11) and Rule 147 of the Securities Act of 1933, as amended.
Issuers with certain bad actors cannot use the exemption. These include having officers, directors, or beneficial owners who were found guilty of securities fraud or misrepresentation. Blind pools, blank check companies, investment companies, hedge funds, commodity pools, or oil, gas and mining exploration industries are prohibited from relying upon the exemption.
Commissions and/or other remuneration cannot be paid to any person for soliciting prospective purchasers, unless the person is a Massachusetts-registered broker-dealer or agent.
To qualify for the exemptions, issuers must:
- File a prescribed notice with the Massachusetts secretary of state with 15 days after the first sale,
- Disclose all material facts about the company and the intrastate offering,
- Disclose that the offering is not registered under federal or Massachusetts law,
- Designate a minimum offering amount to be raised under the exemption, and
- Place investor funds into an escrow account at a Massachusetts-authorized insured bank or depository institution until the designated minimum offering amount is received.
Securities issued pursuant to the crowdfunding exemption are restricted for 9 months. Issuers should consider resale registration under Regulation A+ or a direct offering on Form S-1 registration statement in order to create liquidity for investors.
For further information about this securities law blog post, please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real S, Suite 202 N, Boca Raton, Florida, (561) 416-8956, by email at [email protected] or visit www.securitieslawyer101.com. This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute, legal advice on any specific matter, nor does this message create an attorney-client relationship. Please note that the prior results discussed herein do not guarantee similar outcomes.
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Brenda Hamilton, Securities Attorney
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