This blog provides information and updates on the North Carolina Providing Access to Capital for Entrepreneurs and Small business Act (NC PACES Act) which enables a new way to finance small business in North Carolina using investment crowdfunding. The NC PACES Act was passed unanimously in the North Carolina General Assembly and signed into law by the Governor in July 2016.
NC General Assembly Moves Ahead with Intrastate Crowdfunding Bill in Short Session
By Benji Jones
Today the NC Senate Finance Committee considered SB481, the NC PACES Act: “Providing Access to
Capital for Entrepreneurs and Small Business” and passed it by unanimous voice vote. The bill now moves on to a full vote on the NC Senate floor. The bill has broad bi-partisan support, and if passed by the full Senate will be sent to the NC House for consideration during the short session.
The bill, as now proposed, has two parts. Part I is the NC PACES crowdfunding exemption, which includes minor
technical changes designed to enable it to stay current with changes in federal
laws recently proposed by the Securities and Exchange Commission (the SEC). Part II is unrelated to the NC PACES exemption, and is called the "Public Disclosure of Written Determinations made by the Department of Revenue". This part requires the DOR to publish redacted versions of written determinations letters sent in response to taxpayer requests for clarification of tax regulation and laws. This provides greater transparency and more information to taxpayers who may need similar clarifications.
NC PACES offers small
businesses a new path to raise capital – one that historically has not been
available due to federal regulations that limit the use of general advertising
and that prohibit ordinary investors from participating in private
offerings. Congress addressed this issue
with the 2012 JOBS Act, making private offerings more available to all types of
investors and to all types of companies.
In my mind, the more options
to access capital we give companies – within a balanced regulatory structure –
the better. However, there is no
one-size-fits-all solution. Different
types of companies need to be able to access capital in different ways. The small business, the local mom-and-pop
shop – these are the companies that are being left behind by the federal JOBS
Act, which is simply too complicated, too burdensome, too expensive and (right
now) too novel to really fit well for the pizzeria that needs a new wood
burning stove or the baker who wants to open or expand a storefront
This is why we need NC PACES
– to provide another option, a local path for our North Carolina small
businesses to reach North Carolina investors.
NC PACES permits local
companies to use advertising to approach local investors without regard to
wealth or income limitations. While
working in conjunction with federal exemptions, the bill otherwise eliminates
the burden of compliance with expensive, time-consuming and confusing rules
imposed by federal crowdfunding under Title III of the JOBS Act. Under NC PACES our companies can raise up to
$1 million every 12 months (or $2 million with audited or reviewed financials)
from their friends, family, customers or clients that are North Carolina
residents. This is twice the amount
permitted under federal rules. North
Carolina businesses can use a third-party website to help them conduct the
offering, but, again unlike federal regulations, they are not required
to do so. Although they must file
disclosure materials for review by the North Carolina Securities Division and
will continue to be subject to liability under federal law and North Carolina
statutes, no filings with the SEC are required.
NC PACES offers a simpler,
local solution for small businesses in need of capital. A local company will be able to reach local
investors to attempt to access the critical funding they need to succeed and to
grow. Only with NC PACES can they look
to their neighbors for this support, without going to Wall Street, Silicon
Valley or Washington, DC.
The content contained on this blog does not provide,
and should not be relied upon as, legal advice. It does not convey an offer to
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Benji Jones is a partner at the Smith Anderson law firm with extensive experience in representing companies in exempt and non-exempt securities offerings. Feel free to reach out directly to the author with questions or comments.