Michigan’s equity crowdfunding law, the Michigan Invests Locally Exemption (MILE), gave Michigan businesses an opportunity unavailable at the federal level at the time of its enactment: the ability to raise capital by selling equity online to Michigan residents without registering with the SEC. That opportunity comes with obligations. When you take money from a large number of small investors, you create a stakeholder group with legal rights and legitimate expectations. Managing those expectations—and limiting their impact on your business operations—requires thoughtful corporate structuring from the outset.
Every founder who takes outside capital faces the same tension: investors provide money, and money creates rights. In traditional venture capital, this tension is managed through carefully negotiated term sheets, preferred stock structures, board composition agreements, and protective provisions. In equity crowdfunding, the same tension exists, but it is compressed—you may have dozens or hundreds of small investors rather than one or two sophisticated funds, and the individual relationships are harder to manage.
The structural question you must answer before launching a crowdfunding campaign is: what kind of investors do you want, and what rights are you prepared to give them?
Michigan law and general corporate law give you several tools for structuring your equity offering to limit investor influence:
The most direct tool is issuing a class of shares that carry no voting rights. Investors who hold non-voting shares have an economic interest in your company but cannot vote on corporate matters. This is the cleanest structural solution for founders who want to preserve operational control while accessing equity capital. The trade-off is that non-voting shares are less attractive to investors and may limit your ability to raise the full amount you need.
Rather than issuing equity at all, some businesses structure their crowdfunding campaigns as revenue participation arrangements. Tecumseh Brewing Company—the first Michigan business to use MILE—offered investors a 7% share of monthly gross revenue on a pro rata basis, capped at 1.5 times the original investment. This structure avoids the creation of permanent equity ownership and the governance complications that come with it, but it reduces the upside for investors and may make the offering less compelling to those seeking appreciation.
Shares can be structured with restrictions on dividends, including caps on cumulative dividends, deferral rights, or elimination of participation in extraordinary distributions. These provisions reduce the economic claim investors can make while still providing them with some participation in the business’s success.
A drag-along provision allows a majority of shareholders (or the founders) to require all other shareholders to vote in favor of a transaction approved by the majority. This prevents a dissenting minority from blocking a sale or other strategic transaction.
MILE sets a maximum investment of $10,000 per non-accredited investor per 12-month period, and limits total crowdfunding raises under the exemption. These limits provide some inherent dilution protection—no single small investor can accumulate a large enough stake to exert meaningful control. The minimum investment threshold you set also matters: higher minimums reduce the number of investors and make the cap table easier to manage, while lower minimums maximize participation but multiply the number of relationships you must manage.
Companies raising under MILE are required to make disclosures to investors about the business, its financials, the use of proceeds, and the terms of the offering. These disclosure obligations continue after the raise closes. Founders who take equity from crowdfunding investors must understand that they have ongoing fiduciary duties to those investors, including duties of loyalty and care.
Revision Legal’s corporate attorneys have advised Michigan businesses on MILE offerings and corporate structuring. If you are considering an equity crowdfunding campaign and want to ensure your offering documents and corporate structure appropriately manage investor rights, contact us today.
When you raise money from investors under MILE or any other securities exemption, you assume fiduciary duties to those investors. Directors and officers of Michigan corporations owe duties of loyalty and care to shareholders—including crowdfunding shareholders. The duty of loyalty requires acting in the best interests of the corporation and its shareholders rather than in your personal interest. The duty of care requires making informed business decisions with the diligence of a reasonably prudent person.
For crowdfunding founders, these duties mean maintaining accurate records, providing any periodic reports required under the offering documents, treating all shareholders fairly, and not self-dealing—transacting with the company on terms more favorable to yourself than to the company. Violations of fiduciary duties can give investors a cause of action for breach of duty and, in egregious cases, can result in personal liability for the founders.
A crowdfunding raise can result in dozens or hundreds of shareholders, each of whom may feel entitled to updates about the business. Managing these communications requires a systematic approach. Your offering documents should specify what periodic reporting you will provide to investors—quarterly or annual financials, for example—and what channels you will use for investor communications.
When material developments occur—a significant revenue milestone, a major contract, a change in key personnel, or a material adverse event—founders must decide what disclosure obligations apply. If your offering documents committed to specific reporting, you must follow through. If developments are material enough to affect investors’ investment decisions, consultation with a securities attorney about disclosure obligations is appropriate.
Resist the impulse to treat shareholder communications casually. Communications to shareholders can become evidence in securities disputes. Projections that turn out to be incorrect, assurances that fail to materialize, or misleading statements about the company’s performance can give rise to securities fraud claims even in the context of small equity crowdfunding offerings.
Equity crowdfunding investors in MILE offerings typically face significant liquidity constraints. Unlike publicly traded securities, MILE shares do not have a ready market. If an investor wants to sell their shares, they must find a willing buyer—and MILE’s restrictions on transfer may limit the universe of eligible purchasers. Your offering documents should clearly describe the transfer restrictions applicable to the shares being offered.
For founders, the liquidity question matters because an eventual acquisition or other liquidity event will require addressing the rights of all shareholders, including crowdfunding shareholders. This is another reason why limiting shareholder rights through appropriate share structures from the outset is valuable: it simplifies the governance process when a liquidity event opportunity arises.
Revision Legal’s corporate attorneys have guided Michigan businesses through equity crowdfunding offerings, corporate structuring, and ongoing shareholder relations under MILE and other securities exemptions. If you are planning a crowdfunding raise or managing obligations to existing crowdfunding investors, contact us today.
Every crowdfunding raise is different, and the right structure depends on your specific business, your investor expectations, and your long-term goals. Revision Legal’s corporate attorneys have guided Michigan businesses through MILE offerings and the ongoing investor relations that follow. Contact us today.
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