Minnesota has enacted a law, MNvest, governing the offering of online equity securities. These standards took effect on June 14 but await the publication of additional rules before the law becomes operational. Businesses and investors are also still waiting for the issuance of rules from the U.S. Securities and Exchange Commission which were required under the JOBS Act.
MNvest, allows a broker dealer, the issuer or an entity approved by the state Department of Commerce to issue equity securities through an online portal. These securities are only available to Minnesota residents and must meet the federal exemption for intrastate offerings.
These sales have to be conducted solely through an online MNvest portal, which must display a specific disclaimer that government agencies have not determined the risks and merits of the investment. A portal must obtain written or electronic certification that a potential investor is a Minnesota resident who understands and bears the risk of securities losses and other information concerning the secondary sale of securities.
An issuer is limited to raising no more than $2 million in a period of 12 month if it has audited or reviewed financial statements and no more than $1 million if it did not conduct these audits or reviews. At least 80 percent of the offering’s proceeds must be used with the operation of the issuer’s business in the state. A single purchaser is limited to $10,000 in connection with a MNvest offering unless the investor is accredited.
All purchase funds have to be held in escrow until the minimum stated amount of the offering is reached. Portal operators may not serve as escrow agents which must be a bank, trust company, savings association or credit union authorized to transact business in Minnesota.
A MNvest investor and portal operator may solicit and advertise the offering if the advertisement clearly indicates that it is purely informational, is not an offering and that it is limited to Minnesota residents. Other information such as the anticipated use of funds that are being raised and a link to the issuer’s website may also be displayed.
Corporate financing is an important part of business expansion which faces many significant legal and financial issues. Prompt legal assistance will help assure regulatory compliance with federal and Minnesota standards.
Source: Minnesota Department of Employment and Economic Development, “Minnesota Enacts Equity Crowdfunding Legislation,” Accessed June 28, 2015