From craft breweries to tech companies, Maine’s entrepreneurial spirit is thriving. Now, a new crowdfunding law is giving startups another reason to set up shop in Maine.
In 2014, Maine enacted LD 1512, “An Act to Increase Funding for Start Ups.” The new law lets smaller businesses raise capital by publicly offering equity securities – sort of like a mini IPO.
Fifteen states have enacted crowdfunding laws, but Maine’s law is different. Maine’s law is currently the only crowdfunding law that lets businesses raise capital from both in-state and certain types of out-of-state investors.
Most state crowdfunding laws rely upon the SEC’s “intrastate offering exemption.” However, Maine’s law operates under the SEC’s Rule 504, which only applies to securities offerings totaling less than $1 million. That difference is how Maine’s law opens the door to out-of-state investors, but it also means businesses cannot raise more than $1 million in any 12-month period. Furthermore, the law caps the amount a business can raise from any single investor at $5,000 per 12 months.
The law requires the business to set a minimum offering amount, which cannot be less than 30 percent of its maximum offering amount – and any funds raised must be held in escrow until that minimum goal is achieved. There are other detailed rules governing the process, as well as what organizations are eligible. The rules are too complex to summarize here, but suffice it to say that before planning a securities offering, you should definitely consult a qualified attorney.
So, what types of organizations might benefit from crowdfunding under the new law? Well, a good candidate might be a venture that has (a) already shown some early success, whether through “kickstarter,” venture capital, or other private funding; (b) enough time and money to devote to the process; (c) an identified group of potential investors; (d) a solid business model; (e) a willingness to disclose financial statements; and, of course, (f) a very persuasive case for how it will use any capital it raises.
Not every small business, or every startup, is a good candidate for Maine’s crowdfunding law. But some might be, and it’s very exciting to see Maine striving to be on the forefront attracting new entrepreneurs of all stripes within its borders.
As stated above, raising capital under this or any other state or federal law necessarily involves complex legal issues. The above article is a brief overview/summary; does not present a complete legal analysis; and is not offered or intended as legal advice. Crowdfunding is not appropriate for all organizations, and there are many other options and strategies for raising capital and attracting investors. Always seek qualified professional and legal guidance before moving forward.