Great News For Business Start-ups : Michigan’s New Crowdfunding Law (the Michigan Invests Locally Exemption to Securities Registration)
On December 30, 2013 Governor Rick Snyder signed Public Act 264 establishing an exemption for crowdfunding in the state of Michigan. This act is codified in MCL 450.2202a and is commonly known as the Michigan Invests Locally Exemption (MILE Act)
What is Crowdfunding?
You may not be surprised, but Black’s Law Dictionary (where all lawyers go to get legal definitions) does not have a definition for crowdfunding.
Investopedia defines Crowdfunding as:
The use of small amounts of capital from a large number of individuals to finance a new business venture.
Crowdfunding makes use of the easy accessibility of vast networks of friends, family and colleagues through social media websites like Facebook, Twitter and LinkedIn to get the word out about a new business and attract investors. Crowdfunding has the potential to increase entrepreneurship by expanding the pool of investors from whom funds can be raised beyond the traditional circle of owners, relatives and venture capitalists.
Why is Crowdfunding a Good Idea?
In a letter to President Obama dated April 5, 2012 the Crowdfunding Leadership Group (a group of 13 top equity and debt crowdfunding platforms and industry experts that are forming a leadership group to develop appropriate self-regulation for the crowdfunding industry) stated the importance of Crowdfunding:
Crowdfunding will provide the opportunity for regular Americans to invest small amounts of money in businesses they know and entrepreneurs they believe in. According to Kauffman Foundation research these small companies are the source of net new jobs in the economy.
You can read that letter in whole here: http://www.whitehouse.gov/sites/default/files/crowdfundingcoalitionletter.pdf
What Does the MILE Act do?
The MILE Act, MCL 450.2202a, is a rather lengthy statute. Some key highlights of the Act:
- exempts a business from registering for offering securities in Michigan to Michigan investors, individuals who have a principal residence or business organizations with a principal office in Michigan.
- A business may accept up to $10,000 from a single investor, unless the investor is an “accredited investor”
- A business may accept more than $10,000 from an “accredited investor” and is able to raise up to one million dollars in 12 months without providing audited financial statements to a prospective investor for the business’s most recently completed fiscal year, prepared by a CPA
- At least 10 days before making an offering of securities, business must file a notice with the State of Michigan that contains a host of information that must be disclosed to potential investors, including information such as owners of more than 10% of the company, managing partners and officers in the Company.
Therefore, with this last point in mind, it is important to note that business who are interested in crowdfunding must realize that they will be giving up a certain level of privacy in exchange.
What are other states doing with Crowdfunding?
Several states have enacted similar laws exempting Crowdfunding from securities registration, while other states have bills proposed in various stages.
West Michigan Businesses Benefitting from MILE Act
A recent article in MIBiz highlighted a supplier to West Michigan’s growing craft beverage industry planning on becoming the first company in West Michigan to take advantage of Michigan’s new crowdfunding law. CEO Erik May hopes his Jenison-based company, Pilot Malt House LLC, will be able to meet a six-figure fundraising goal once the crowdfunding campaign goes live within a couple of weeks on the portal run by the Indianapolis-based LocalStake Marketplace LLC – See more at: http://mibiz.com/news/mibooze/item/21580-malt-producer-hopes-for-six-figure-raise-via-crowdfunding#sthash.TknbzIXA.dpuf
Kudos to Erik May in setting the stage for other West Michigan Start-ups to take advantage of the MILE Act!
Jeshua T. Lauka [Inline image 1] Attorneys at Law 99 Monroe Ave. NW Ste. 1210 Grand Rapids, MI 49503 Tel: (616) 454-3883 Fax: (616) 454-3988 Email: Jeshua@dwlawpc.com Website: www.dwlawpc.comhttp://www.dwlawpc.com/ Blog: http://jeshualaukalegalnews.wordpress.com/ Follow me on Twitter: http://twitter.com/JeshuaTLauka
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