Crowdfunding involves the sale of stock by a privately-held company to the general public through crowdfunding portals, and this process has become particularly popular in recent years. Traditionally, companies could only sell stock to the general public if the sale was registered with the Securities and Exchange Commission (SEC), but that process is expensive, time consuming, and a non-starter for most new companies. Crowdfunding has become an attractive financing solution for emerging companies, particularly in the tech and gaming arenas.
The JOBS Act of 2012 permits crowdfunding, but only through “crowdfund portals,” and the SEC has not yet finalized its regulations surrounding the process. For example, until the law is finalized, “interstate” crowdfunding – offering stock to potential investors outside of your state – is not permitted. “
To add to the ambiguity around the process, while popular, Kickstarter, GoFundMe and similar websites are not exactly crowdfunding portals; rather, these sites allow ”investors” (i.e. the general public) to donate to projects, but they do not permit equity investment in companies. When a donation is made on Kickstarter, the donor may receive a thank you gift, but does not receive any ownership in or rights to any profits from the project.
However, the Invest Georgia Exemption provides another option for crowdfunding, allowing companies based in the Peach State to solicit investments from Georgia-based investors (an “intrastate,” – not “interstate” – sale). Georgia was the second state to permit this type of intrastate exemption, and a total of 12 now have similar incentives in place.
While the majority of the country eagerly awaits the adoption of the proposed crowdfunding regulations under the JOBS Act, Georgia companies and investors have access to the crowdfunding market for intrastate offerings right now.
In order to be eligible for the Invest Georgia Exemption, certain requirements must be met:
- the company must be a for-profit business entity;
- the company must be an entity formed under the laws of the State of Georgia and be doing business within Georgia;
- the securities may only be offered and sold to residents of the state of Georgia;
- the total amount of money raised in reliance on the Exemption cannot exceed $1,000,000 in any 12 month period;
- the company may not accept more than $10,000 from any single purchaser unless the purchase is an accredited investor; and
- all funds received from investors under the Exemption must be deposited in a bank or depository institution authorized to do business in Georgia.
In our next article, we will address some limitations arising from crowdfunding and the Invest Georgia Exemption. In the interim, if your company is in the market to raise money and your credit cards are maxed-out, and your friends and family are tapped-out, look into whether the Invest Georgia Exemption is right for you.
Scott A. Augustine and Erica L. Opitz are attorneys in the Corporate, Securities and Finance Practice at Chamberlain Hrdlicka (Atlanta). They counsel clients in a variety of industries on business formation, venture capital and private equity funding, and other legal, financial and operational matters. Because of the firm’s strong tax capabilities, Chamberlain Hrdlicka’s attorneys provide businesses with a strong foundation for financial security, and serve as trusted business advisors through every state of a company’s growth. Augustine, a shareholder in the firm, may be reached at (404) 658-5431 or by email at scott.augustine@chamberlainlaw.com. Opitz may be reached at (404) 658-5440 or by email at erica.opitz@chamberlainlaw.com.
