OtherOregon Joins the Crowd: 6 Things You Need to Know about the State’s New Crowdfunding Law
This guest post comes to us from Neil Nathanson, Partner in Emerging Companies and Venture Capital at Perkins Coie, LLP:
On January 15, 2015, Oregon joined the ranks of states that have grown weary waiting for the Securities and Exchange Commission (SEC) to implement the crowdfunding provisions of the federal JOBS Act.
By establishing its own crowdfunding exemption, Oregon now allows small businesses to raise capital from investors through a crowdfunding platform. What does that mean? Instead of getting a mug or T-shirt, contributors to a crowdfunding campaign may get a financial return.
The regulations are effective immediately. So, are you eligible? You can find the full text of the new administrative rules here, but here’s a quick overview:
1. You Must be in Oregon
A businesses relying on the new exemption must be registered as a domestic Oregon corporation or Oregon limited liability company, with its principal office in Oregon. Investors must also be residents of Oregon.
2. Small Companies Only
The new rules are designed to improve access to capital for smaller companies. Companies with more than 50 employees are not eligible.
3. Limited Offering Amount and Small Crowds
The maximum offering size is $250,000, of which no one can invest more than $2,500. Thus, if a company takes the maximum investment from each investor, the crowd is capped at 100 investors. Companies can skirt these limits by running multiple crowdfunding campaigns, though they would need to observe a six month period after the end of one offering to launch the next, or take other steps to avoid having the offering deemed integrated.
4. Anyone Can Invest
The exemption allows participation by the “crowd” by placing no income, wealth or sophistication limitations on the investors. Certain regulations are geared toward protecting investors—for instance, companies must review their business plan in person with a Small Business Development Center, an Economic Development District, or an incubator, accelerator, or business resource provider approved by the Director of the Department of Consumer and Business.
Companies must also make provide extensive offering disclosures to investors and the state, covering use of proceeds, risk factors, business description, qualifications of the team, and any history of litigation.
5. Internet Platforms Encouraged?
Although the exemption is available regardless of whether the offering is conducted online, the regulations contain specific rules applicable to offers administered either on a secure portion of the issuer’s web site or at a third-party platform. Oddly, the rules prohibit third-party platforms that have not hosted at least five offerings. Thus, a platform may not be able to launch under the rules, unless it does so with concurrent offerings from five different companies.
6. Ongoing Reporting
Issuers that use the new exemption must report back to their investors and the state at least twice a year with a detailed disclosure of director and executive officer compensation and discussion and explanation of business operations and the financial condition of the company.
Neil Nathanson, a Partner in Perkins Coie’s Business practice, focuses on emerging technology company representation. He advises emerging growth companies in venture, angel and other private and public equity and debt financings, corporate governance, securities law, mergers and acquisitions, and computer and Internet law. He also serves as Chair of OEN’s Angel Oregon Spring 2015 Program.
