Opening Access to Capital in California: Local Economies Securities Act and Crowdfunding Exemption

While more than a third of all US states have enacted laws allowing digital investing, California is still without an intrastate securities crowdfunding regulation. Investing in startups, family-businesses and more in general in SMEs, is not that easy yet. The good news is that things are likely to change shortly.

The Small Business California’s Crowdfunding bill (AB 2178), proposed by Assembly Member David Chiu and sponsored by Small Business California, would allow SMEs in the state to raise up to $1 million, in securities sold in a 12-month period, within or outside this state. While the investment limit for retail investors is the lesser of $5000 or 10% of their net worth.

The bill passed the Assembly Banking Committee in April, the next step now is for the Assembly Judiciary Committee to discuss and vote it. The prior attempts to pass a crowdfunding law in California were not successful but now it could be the right time. Let’s wait and see.

The document with the proposed bill can be found at this link: http://buff.ly/24vgL9U

The good news have not ended. The new California Local Economies Securities Act (AB 2751), by the Sustainable Economies Law Center (SELC), which already passed the State Assembly Banking and Finance Committee, aims to make investing in local businesses much easier.

As exhaustively detailed by the SELC, the bill proposes allowing enterprises to conduct small public offerings through the following exemptions from permitting requirements:

Exempt from permit requirements for securities offering if:

• the business provides basic offering and business information to the public,
• the total amount raised does not exceed $500,000,
• no individual non-accredited investor invests more than $1,000.

Note: Accredited investors would be limited to investing no more than 5% of their net worth.

Small farm enterprise or agricultural land trust will be allowed to raise up to $2 million for the purchase, long-term leasing, purchase of an easement, construction, or improvement of real property to be used for agriculture purposes. In order to benefit from this exemption the issuer must be majority controlled by people actively engaged in the farm enterprise or it must be controlled by a nonprofit public benefit corporation.
The investment limit for a retail investor is generally $2,000, but the limit is raised to $5,000 in case the investor has an annual gross income of at least $100,000 or a total net worth of $200,000 or more. While accredited investors would be limited to investing no more than 5% of their net worth (calculated excluding home and furnishings).

Nonprofits, mutual benefit corporations, and cooperatives working on renewable energy projects, will be able to raise up to $2 million to finance the purchase of solar panels or wind turbines. The investor limitations are the same listed above for the agricultural land exemption.

More details on investors protections and exemptions for nonprofit organizations are detailed very clearly on the SELC website, at this link: http://www.theselc.org/lesa_summary

California, home of Silicon Valley, is America’s posterchild as it comes to entrepreneurship, so its only fitting it develops its frameworks for incentivizing innovation and opportunities further. These two initiatives are an important step in developing access to capital for small businesses and further growing the entrepreneurial ecosystem in California.

Originally published at news.crowdvalley.com.