Wednesday, June 29, 2016

We Made It! NC PACES Act to Become Law

By Benji Jones

The NC PACES Act: “Providing Access to Capital for Entrepreneurs and Small Business” has been passed by the NC House by a vote of 114 to 0, the NC Senate by a vote of 49 to 0, and is now headed to Governor McCrory for his signature.  After 3.5 years in the making, intrastate investment crowdfunding is finally coming to North Carolina!  
 
Senator Tamara Barringer
Senator Tamara Barringer, co-sponsor of the bill, states: “The NC PACES Act has passed the North Carolina House and Senate unanimously, paving the way for small businesses to raise much needed capital, providing jobs and opportunities for North Carolinians.”

What does this mean? 

A North Carolina business will be able to raise up to $1 million in any 12-month period (or up to $2 million with audited or reviewed financial statements) from investors who are North Carolina residents.  There are no wealth or income limitations on who can invest; however, investors who are not “accredited” may only invest $5,000 in a particular venture in any 12-month period.

Companies will be permitted to promote the offering publicly, after filing a notice (as well as substantive disclosures) with the Securities Division of the North Carolina Secretary of State.  A fee of $150 will also be charged.  Companies are required to communicate in writing the business plan, financials, use of funds, and risks of the offering. Investors are required to certify in writing at the time of sale that they understand the risks of purchasing unregistered securities and that they may lose their entire investment.

Companies may (but are not required to) use a professional crowdfunding intermediary that meets the requirements established by NC PACES and related rules.  They are required to establish an escrow to hold funds prior to closing.

Benji Jones
Companies that issue securities under NC PACES will be obligated to provide quarterly reports to investors discussing management compensation, operating results, and financial condition, etc.

When can we start?

Companies can start gathering materials, preparing disclosures, and consulting advisors now.  However, you will not be able to formally pursue investors under NC PACES until the Securities Division of the North Carolina Secretary of State’s office adopts specific rules to implement the provisions of the Act.  The Secretary of State’s office has played a critical role in formulating this exemption and, although the law gives it a 12-month period to act, hopefully, it will give implementation of these rules highest priority. 

There are some details to iron out so stay tuned here for more updates.   

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 represent you or an attorney-client relationship. All uses of the content contained in this blog, other than for personal use, are prohibited.

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.



Monday, June 27, 2016

NC PACES Act Passes NC House by a Vote of 114 to 0

SB481, which includes the NC PACES Act crowdfunding exemption as Part I, was passed by the NC House by a vote of 114 to 0 tonight. The bill has been referred back to the Senate for final approval of a new and unrelated Part III to the bill called ‘Prohibit Cities from Charging Fees for Utility Use of Right-Of-Way’ which was tacked on by the House. Please click on the Track Progress of S481 to the right for the status of the bill and to view the latest version of the bill known as Edition 5.






Thursday, June 23, 2016

NC PACES Act Passes Second Reading on NC House Floor by a vote of 99 to 1

SB481, which includes the NC PACES Act crowdfunding exemption as Part I, was fast tracked to the NC House floor and passed second reading by a vote of 99 to 1 today. The bill has been put on the NC House calendar for final vote on Monday 6/27. Yesterday the NC House finance committee attached a new and unrelated Part III to the bill called ‘Prohibit Cities from Charging Fees for Utility Use of Right-Of-Way’. Please click on the Track Progress of S481 to the right for the status of the bill and to view the latest version of the bill known as Edition 4.




Monday, June 20, 2016

NC PACES Act Passes NC Senate by a Vote of 48 to 0

Tonight the NC Senate passed SB481 which includes the NC PACES Act crowdfunding exemption as Part I of the bill. The bill passed the second and third reading by a vote of 48 to 0, and was sent on to the House by Special Message. This is a significant step forward for the bill, which enables a new way of raising capital for North Carolina startups and small businesses using investment crowdfunding. Senator Barringer and Senator Gunn spoke on behalf of the bill.





Wednesday, June 15, 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. 
Benji Jones

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 business. 

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.

Close to 40 other states have adopted or are
considering similar
local crowdfunding legislation.

NC PACES is the chance for Main Street, NC
to claim its place on the investment crowdfunding map.

So, if you believe this is a good thing, contact your State Senator or Member of the House of Representatives today and encourage them to pass SB481 as soon as possible! 


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 represent you or an attorney-client relationship. All uses of the content contained in this blog, other than for personal use, are prohibited.

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.


Sunday, June 12, 2016

Intrastate Crowdfunding is a Good Option

Attorney Anthony Zeoli of Chicago explains why intrastate crowdfunding is a good but sometimes overlooked option for startups and small businesses that are raising capital. He also compares recent Federal Title III crowdfunding rules with the intrastate exemptions such as the one in Illinois that he helped create.

Intrastate Crowdfunding: The Often Overlooked Option
By Anthony Zeoli
Anthony Zeoli
With the Federal Title III rules recently becoming effective, there is certainly a lot of excitement surrounding national level “retail” crowdfunding to non-accredited investors. That’s obviously great news for the industry, but it’s important to remember that the majority of the states currently have some form of “intrastate” retail crowdfunding laws already in effect; many of which offer significantly more favorable terms to issuers and investors than the federal rules. Moreover, the number of states passing these laws, and their use, continues to grow making them viable capital options for many companies.
State of the States and Title III: 
You may not know it but currently thirty (30) states have enacted Intrastate crowdfunding exemptions (or have enacted amendments to their existing blue sky laws to permit some type of Intrastate crowdfunding) and another eight (8) states are in various stages of enacting/considering such legislation.  Just like the highly anticipated Title III rules, each of the state laws allows for crowdfunding to non-accredited investors. That being said, the laws of each state are somewhat unique and a discussion of the nuances between the various state laws would literally take all day. Luckily for those that might be interested I maintain, what I believe to be, the definitive comparative matrix of current Intrastate crowdfunding laws.
Read the complete post on Anthony's blog.

It is time for North Carolina to pass the NC PACES Act S481 and enable this new way of financing startups and small businesses as 30 other states have already done.