Equity Crowdfunding (almost) Available in Washington State!
By Peter J. Smith
On April 5, 2012, President Obama signed the JOBS Act into law. Among other provisions, the JOBS Act aimed to permit unaccredited investors (think the average Joe) an opportunity to invest a limited amount of capital in businesses. Without the JOBS Act, it is nearly impossible to raise money from average Joes.
According to Amy Cortese, who was at the JOBS Act signing event on April 5th, there was “electricity and excitement in the air.” Of those who were paying attention, many believed that the outdated securities law regime established in the 1930’s was about to be democratized to permit the average Joe to invest. But perhaps an equal number, mostly securities lawyers and securities regulators (the SEC), felt like the Jobs Act is a shift for the worse, that the average Joe would get taken advantage of by startup company founders.
The result is that today, 2 years after that electric signing event, we’re still waiting for the SEC to promulgate regulations to implement and operate the crowdfunding portion of the JOBS Act.
In direct response to this federal foot-dragging, Jay Inslee signed the “Washington Jobs Act of 2014” into law on March 28, 2014, which sets the stage for crowdfunding within the confines of Washington State. The full text of the bill is available here.
The key provision of the bill is in Section 3. So long as the requirements in Section 3 are followed, then a local business can offer securities to the general public without having to register the securities, which is often a prohibitively expensive process. I’ll save a full analysis of Section 3 for a future post; for now, a highlight of select requirements for the company are that (1) only $1M are raised under this exemption within a 12-month period; (2) the company is organized under Washington state laws; (3) the investors provide evidence that they are Washington residents; (4) the securities are “declared exempt” by the Department of Financial Institutions (“DFI”); and (5) the investors only invest up to a prescribed amount of money within a 12-month period (up to $2,000 for persons who earn under $100,000 and up to 10%, or $100,000, who earn more than $100,000 per year). Again, the above list is not the full list of requirements, but a highlight of the central requirements.
Our state community is once again hopeful that democratized finance will move forward in Washington. But there is a catch.
The catch is that DFI (which regulates securities in Washington State) needs to promulgate its own regulations to implement the statute. We’ll have to wait and see what these regulations require before we’ll know how effective or onerous this crowdfunding option will actually be. The good news is that the bill includes a time line for implementing regulations. DFI has until, at the latest, April 1, 2015 to issue all of the necessary implementing regulations.
Equity crowdfunding is almost a reality in Washington State.
The article provided above is for general information purposes only and should not be relied on as specific legal advice. This article does not form an attorney-client relationship. If you have any questions about this article, please feel free to contact Peter J. Smith at firstname.lastname@example.org
June 29, 2020