November 2014 Bar Bulletin
Crowdfunding in Washington: A New Capital Idea
By Mike Liles, Jr.
On October 1, the Washington securities director issued implementing rules under the Washington Jobs Act, which includes the Washington Crowdfunding Act, in order to assist Washington start-up companies in accessing capital in small securities offerings by reducing the costs and burdens of raising such equity capital without sacrificing investor protection.1
The rules under the Washington Crowdfunding Act differ from those proposed under comparable federal law. The essentials of these new Washington regulations are summarized below.
To make a crowdfunding offering under the Washington Jobs Act, a company must be a Washington corporation or other Washington entity, and must be doing business within Washington.2 But holding companies; portfolio companies; companies with complex capital structures; blind pools; commodity pools; oil, mining or other extractive companies; real estate programs; and equipment leasing programs may not use the Washington Crowdfunding Act.3
There is a limit of $1 million in gross proceeds that may be raised in a Washington crowdfunding offering,4 and there are caps on the amount an investor may invest in a year, based upon the investor's annual income or net worth5
Such an offering may only be made to bona fide Washington residents and must comply with SEC Rule 147, the so-called "intrastate offering" exemption under federal law.6 To do so, under federal law:
- 80 percent of a company's gross revenues must come from within Washington,7
- 80 percent of the company's assets must be in Washington,8 and
- 80 percent of the net proceeds from the crowdfunding offering must be used in Washington.9
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