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More and More States Are Passing Crowdfunding Laws Due to SEC Delays on Federal Law

More and More States Are Passing Crowdfunding Laws Due to SEC Delays on Federal Law

By | 06.08.15
More and More States Are Passing Crowdfunding Laws Due to SEC Delays on Federal Law

Although the original crowdfunding legislation was signed into law by President Obama in 2012 and named “a potential game changer” for entrepreneurs seeking financing, over 3 years later those same entrepreneurs are still waiting for federal regulators to draft the rules that would enable the law to take effect. Due to this long delay, state agencies and lawmakers have recently begun to pass their own state crowdfunding laws and regulations that allow local business owners to raise money online to start or expand their business. Chicago lawyer and blogger Anthony Zeoli cites multiple reasons for this recent trend at the state level, including the fact that crowdfunding opens up capital and helps to grow small businesses, which is good for local economies.

To date, 22 states and the District of Columbia have enacted their own crowdfunding legislation (9 of them in the past 6 months), while 3 additional states (Florida, Illinois, and New Mexico) are waiting for a governor’s signature to put their legislation into law. In addition, 11 states are actively considering creating such laws at the state level. According to data collected by the New York Times, around 95 companies nationwide have filed applications to raise money via crowdfunding. Here are some main attributes found in most state crowdfunding laws:

  • In many cases, companies may raise money only from investors in the state where that business is located. One exception to this is Texas, where intrastate crowdfunding became legal in November.
  • For the most part, the amount of moneys companies can raise under state crowdfunding laws is relatively small, with most states limiting the total to $1 million or $2 million. In addition, the amount any individual investor is allowed by law to give is typically capped at $10,000 or less (although accredited investors are allowed to invest much larger sums).
  • In many states, businesses are encouraged or in some cases required to advertise their offerings through online portals. (Although dozens of these portals have opened in the past year, they have been slow to catch on).

Despite state crowdfunding laws, the trend has been slow to catch on among investors, most likely due to a lack of awareness about equity crowdfunding and how it works. So far, the businesses that have seen the most success with state-mandated crowdfunding are those that already have an existing network of supporters in place. It is hoped that this will change when the Securities and Exchange Commission issues those rules that will allow small business fundraising to take place on a national level.

Reference:

Cowley, Stacy. “Tired of Waiting for U.S. to Act, States Pass Crowdfunding Laws and Rules.” The New York Times. 6/3/15.

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