The concept of crowdfunding business ventures has become commonplace in our society through the growth of sites like kickstarter.com, indiegogo.com, or fundanything.com. While these sites serve a valuable purpose, to help people or companies raise money for certain projects, the individuals giving money are essentially donating to the idea (not counting the perks that go along with certain donations). But Michigan has acted quickly and passed a law to bring a new reality to raising money: Equity Crowdfunding in Michigan.
The United States Federal Government passed a bill in 2012, the JOBS Act, that would permit “equity crowdfunding.” Instead of making a donation, individuals can become stockholders in a new or expanding corporation. In other words, you actually buy equity in the business. But, the SEC is still implementing the rules to make the JOBS Act’s crowdfunding provisions run.
Michigan is not waiting for the federal government to finalize its rules. On December 30, 2013, Public Act 264 (PDF) became law, permitting businesses to offer and sell securities within the State of Michigan, without adhering to the burdensome federal reporting requirements (although some requirements still exist).
This Act permits Michigan businesses to raise up to $1 million in any 12-month period, or $2 million in any 12-month period if audited financial statements are available. The Act limits non-accredited investors to purchasing $10,000 worth of securities. The business seeking to qualify for the sale of securities under this bill must be established under Michigan law and authorized to do business in the State.
Michigan’s step forward into equity crowdfunding contains a number of other rules and regulations deserving of their own time and explanation, however, this State has taken a big step to help businesses raise money. The question now: is your business ready to utilize the crowd?
When the SEC finalized Regulation Crowdfunding (Reg CF) under Title III of the JOBS Act in 2015, and subsequently updated it in 2021, it created a parallel federal framework alongside Michigan’s intrastate exemption. Under Reg CF, eligible companies can raise up to $5 million from both accredited and non-accredited investors in any 12-month period through SEC-registered funding portals. The 2021 updates significantly increased the offering cap (up from $1.07 million) and made the rule more accessible to a broader range of issuers.
The key distinction between Reg CF and Michigan’s intrastate exemption is geographic scope. Reg CF allows issuers to raise funds from investors nationwide, while the Michigan intrastate exemption is limited to Michigan residents investing in Michigan businesses. For Michigan businesses that want to access a national investor pool, Reg CF may be the better vehicle despite its additional compliance requirements.
Companies raising funds under Reg CF must file a Form C with the SEC, which requires disclosure of:
After the offering closes, issuers must file annual reports on Form C-AR disclosing updated financial information and business developments. These ongoing reporting obligations continue until the issuer has fewer than 300 holders of record and has filed at least one annual report, or certain other termination conditions are met.
One of the most important features of Reg CF is the ability of non-accredited investors to participate. Traditionally, investing in private companies was limited to accredited investors—those with income exceeding $200,000 annually (or $300,000 joint income) or a net worth exceeding $1 million excluding primary residence. Reg CF opened equity crowdfunding to ordinary investors subject to aggregate investment limits.
For investors whose annual income or net worth is less than $107,000, the investment limit is the greater of $2,200 or 5% of the lesser of annual income or net worth. For investors whose annual income and net worth are both at least $107,000, the limit is 10% of the lesser of annual income or net worth, not to exceed $107,000. These limits apply across all Reg CF offerings in a 12-month period, not per offering.
Companies raising funds under Reg CF cannot do so through their own website or directly to investors. All Reg CF offerings must be conducted through an SEC-registered and FINRA-member funding portal or a registered broker-dealer. Funding portals are subject to ongoing registration, examination, and compliance requirements. They must provide educational materials to investors, take measures to reduce fraud risk, and ensure that investors have completed the required acknowledgments before investing.
Selecting the right funding portal is an important decision for companies considering a Reg CF offering. Portal fees, investor networks, marketing support, and platform reputation all vary significantly across the available portals. Experienced equity crowdfunding counsel can help issuers evaluate their options and select the portal best suited to their offering.
Whether you are a Michigan business considering Michigan’s intrastate exemption or a federal Reg CF offering, the crowdfunding attorneys at Revision Legal can guide you through the regulatory requirements and help you structure your offering for success. Contact us today for a consultation.
Before launching an equity crowdfunding campaign, Michigan businesses should take the following practical steps to maximize the likelihood of success and ensure legal compliance:
Contact the equity crowdfunding attorneys at Revision Legal today for guidance on structuring and executing your Michigan equity crowdfunding offering.
The legal obligations of equity crowdfunding issuers do not end when the offering closes. Both Michigan’s intrastate exemption and federal Reg CF impose ongoing reporting obligations on companies that raise funds through equity crowdfunding. Under Reg CF, issuers must file annual reports with the SEC on Form C-AR, providing updated financial information and disclosing material developments in the business. These reports must be filed within 120 days of the fiscal year end and continue until the company meets certain termination criteria.
Michigan’s intrastate crowdfunding framework has parallel reporting requirements, including obligations to notify the Michigan Securities Division of material changes to the offering or the business. Companies that fail to meet their ongoing reporting obligations risk losing their exemption status and facing securities enforcement action. Our crowdfunding attorneys help clients establish compliance systems that ensure ongoing obligations are met and advise on managing the investor relationships that arise from an equity crowdfunding offering. Contact us today to discuss your post-offering compliance needs.
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