“Crowdfunding” refers to financing a venture by raising small amounts of money from a large number of investors. In December 2013, Governor Synder signed a law commonly known as the Michigan Invests Locally Exemption (“MILE”), which creates an intrastate exemption for equity crowdfunding in the state, thereby enabling companies to raise money from Michigan-based investors.
Under the new law, small businesses can sell shares in their companies without undertaking the complex process of registering offerings with the federal Securities and Exchange Commission (“SEC”) and without adherence to onerous federal crowdfunding rules. To be eligible to issue shares under Michigan’s law, an issuing company must be headquartered in Michigan, and it may sell shares only to Michigan residents. Likewise, an issuing company must generate at least 80% of its gross revenues from Michigan, hold 80% of its assets in the state, and use 80% of the proceeds within the state. The law also imposes resale restrictions, caps offering amounts, and sets forth certain notice and disclosure requirements.
Additionally, Michigan companies who are tempted to use the internet to solicit investors must proceed with great caution. Although crowdfunding and social media promotion have typically gone hand in hand, recent guidance issued by the SEC suggests that companies falling within the MILE exemption may not use social media sites to solicit investments, since the posts would reach potential investors outside of Michigan.
Although Michigan’s crowdfunding law further opens the door to new investments within the state, offering companies and potential investors alike must be careful to avoid common pitfalls. Companies looking to sell shares must be sure to conduct all sales in strict compliance with applicable laws and regulations. Likewise, investors looking to purchase company shares under the law must exercise caution and perform due diligence to confirm that the offering is legal and legitimate.
Feel free to contact Wright Beamer today if you would like guidance in handling a crowdfunding venture!