PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

Crowdfunding Legislation Catches Fire in the States

By at 8 April, 2014, 10:53 am

by Raymond J. Keating-

There’s been a recent flurry of intrastate crowdfunding legislation passed into law, allowing equity investment for small business ventures via the Internet and with unaccredited investors within state borders.

Two years ago on April 5, equity based crowdfunding was made legal through the JOBS Act. SBE Council President Karen Kerrigan and members Woodie Neiss, Zak Cassady- Dorion and Jason Best were on hand at the White House to watch President Obama sign it into law. Small businesses are still waiting on the SEC to finalize JOBS Act rules, but states are moving ahead with their own crowdfunding initiatives.

Two years ago on April 5, equity based crowdfunding was made legal through the JOBS Act. SBE Council President Karen Kerrigan and members Woodie Neiss, Zak Cassady-Dorion and Jason Best (pictured above) were on hand for the White House signing ceremony. Small businesses are still waiting on the SEC to finalize JOBS Act rules, but states are moving ahead with their own crowdfunding initiatives.

On April 2, for example, Governor Mike Pence signed Indiana’s crowdfunding legislation into law. As reported by Crowdfunderinsider.com, the bill was crafted in recognition of the importance of small businesses in creating economic growth and opportunity for the state of Indiana.”

It was also noted that Indiana’s “investment crowdfunding legislation is very similar to Wisconsin’s and Michigans new laws that recently passed,” along with new measures in Maine and Washington as well. These come after Kansas and Georgia led the way on intrastate crowdfunding. Legislation also is moving in places like Florida and North Carolina.

At the federal level, the Jumpstart Our Business Startups (JOBS) Act, signed into law by President Barack Obama in 2012, is not fully functional, as final rules are awaited from the SEC, in particular regarding non-accredited investors (Title III crowdfunding).  April 5th marked the second anniversary of the signing of the JOBS Act, but still no final rule from the SEC on Title III.

So, why should states get involved? There are a variety reasons, including some believing that the SEC’s rules, in the end, will be too burdensome and costly for small businesses seeking to raise financial capital via crowdfunding, and too limiting for investors.

But there’s more. Writing at Forbes.com, Alan McGlade included the following among his “5 Reasons Why States Should Seize The Initiative On Crowdfunding”: “Investment and innovation gravitates to the states that are most welcoming. Tech hubs are springing up in locations throughout the country and around the world. Every state wants the jobs, revenue and high profile that flow from housing a successful start-up ecosystem. Forward-looking states are priming the pump through a variety of incentives including a friendly regulatory environment.” A bit later, he added: “But the more visionary states will separate themselves from the pack and seize the initiative. They will try to determine what can make crowdfunding a winning option for businesses and investors within their state, create a legislative framework to achieve this goal, and then actively promote the industry within their borders.”

McGlade is correct. State lawmakers need to work on every front to create the best possible environment in which entrepreneurship and investment, and therefore, economic and employment growth, can flourish. Making one’s state a crowdfunding-friendly state is a clear plus, and that’s why, for example, intrastate crowdfunding is now included in SBE Council’s annual Small Business Policy Index.

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Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

Keating’s new book, published by SBE Council, is titled Unleashing Small Business Through IP: Protecting Intellectual Property, Driving Entrepreneurship. It’s available from Amazon.com here.

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