MA Adopts Crowdfunding Exemption; Is AZ Next?

Less than two months into 2015, Massachusetts and potentially Arizona will join the growing number of states that have adopted intrastate crowdfunding exemptions – one of the emerging trends in economic development from 2014.  In January, the Massachusetts Securities Division adopted a crowdfunding exemption that will allow businesses to raise up to $2 million in equity from both accredited and non-accredited investors.  A similar exemption was introduced in early February to both the Arizona state Senate and House with strong bipartisan support and the approval of several key business leaders and organizations. Minnesota (SF 138) and Colorado also have recently proposed or introduced intrastate crowdfunding legislation. However, both may face a difficult path to approval due to stronger opposition from key organizations and leaders within the state.

Massachusetts
In January, the Massachusetts Securities Division adopted the Massachusetts Crowdfunding Exemption – 950 CMR 14.402(B)(13)(o). The new intrastate crowdfunding exemption will allow Massachusetts businesses to raise up to $1 million in funding during a one-year period without a financial audit and up to $2 million if the company has made audited financial statements available to each prospective investor. The exemption has two tiers for investors based upon the annual income/net worth:

• If both the annual income and net worth of investors are less than $100,000, the maximum investment is either $2,000 or 5 percent of his/her annual income or net worth, whichever is greater; and,
• If either the annual income or net worth of the investor is equal to or more than $100,000, the maximum investment is either $100,000 or 10 percent of annual income or net worth of the investor, whichever is greater.

Arizona
Earlier this month, SB1450 was introduced in the Arizona Senate to create an exemption that will allow the state-based businesses to engage in intrastate equity crowdfunding.  Highlights of the bill include:

• Non-accredited investors can make a maximum investment of $10,000;
• Investments by accredited investors are not capped;
• The sale of the securities must be made exclusively through a broker-dealer operated web portal or via person-to-person meetings;
• Companies can raise up to $1 million within a 12-month period without having their financial statements audited;
• With audited financials, companies can raise up to $2.5 million.

The Arizona Corporation Commission would be required to develop safeguards to protect both investors and businesses from potential fraud.  An identical bill (HB 2591) also was introduced in the Arizona House.