IGE (Invest Georgia Exemption): How Georgia is leading the crowd in crowdfunding

I’ll admit. The state where I was born and raised has been no. 1 in a lot of bad things over the years—transportation issues, traffic problems, education failure. But I am proud to say that Georgia is one of the top states if not THE top state to do business and that makes this Georgia peach proud. (Source)

Luckily I have the opportunity to serve in the Georgia legislature and create and push for policies that I believe will help Georgia continue to lead other states with respect to business friendliness. One of my projects leading up to the 2017 legislative session is to examine our private investment policy in Georgia and provide recommendations to stakeholders to strengthen our flow of private capital through the State.

One of the important measures that Georgia took the lead on was its intrastate crowdfunding exemption. The Invest Georgia Exemption, or IGE (2011), is an exemption to the 1933 federal Securities Act that allows Georgia to create its own regulations around intrastate crowdfunding (not interstate–that’s across state lines).Georgia was one of the FIRST states to pass this intrastate exemption and now there are 31 other states that have passed similar regulations to make it easier to raise capital within a state.

After taking a look at the states across the country, Georgia really is leading the states in intrastate offerings because of its raised cap, notice only 2 page filing requirement, a higher than normal cap on investment amounts and the fact that crowdfunding portals are not required in order to raise capital.

 

 

 Here is the gist of the IGE regulations: (Legal Disclaimer: Please consult the full regulations of IGE before proceeding.)

  1. Issuer has to be a for profit entity formed under the laws of Georgia and registered with the Secretary of State (so no partnerships or sole proprietorships);
  2. The maximum amount an issuer can raise is $5MM (up from $1MM as of the Fall of 2015);
  3. The issuer cannot accept any more than $10,000 from a single purchaser UNLESS purchaser is an “accredited investor” as defined under Rule 501 of the S.E.C. (that rule may be changing soon under federal law so watch for that legislation);
  4. All funds must be deposited into a bank authorized to do business in Georgia;
  5. Upon or before either of 2 triggering events, the issuer must file a notice with the Commissioner in writing or electronic form with specific information; and
  6. This exemption cannot be used with any other exemption under the Rules or Act EXCEPT for officers or sales to certain people.

That’s it. To date, Georgia has had 38 companies apply for the IGE Exemption.

Compare the raise cap and investor cap of Georgia with other states:(Data provided by GA House of Representatives Research Office)

  • Alabama- $1MM; $5k per investor
  • Arizona– $1MM or $2.5MM if GAAP financial statements are audited and presented; $10k per investor [Only 1 company has filed for exemption]
  • Colorado– $1MM; Unlimited [No companies have filed for exemption.]
  • DC- $500k or $1MM if GAAP used; For “natural persons”: $10k per investor if the investor’s gross incoem is less than $100k; $25k per investor if the investor’s gross incoemi s $100k-$200k; for non natural persons, $0 unless gross net worth is greater than $1MM
  • Florida– $1MM; The lesser of $2k or 5% of investor’s annual net worth per investor per year if the investor’s annual gross income or net worth is less than $100k or the lesser of $100k or 10% of the investor’s annual net worth per investor per year if the investor’s annual gross income or net wroth is over $100k
  • Idaho- $2MM; The lesser of $2,500 or 10% of the investor’s net wroth per investor exlcuding home auto and furnishings. [Idaho has issued orders authorizing crowdfunding in 5 instances.]
  • Illinois- $2MM or $4MM is the insurer provides independently reviewed and officer certified financial documents; $5k per investor per offering
  • Iowa- $1MM; $5k per investor per offering, treating relatives and people in the same household as one investor
  • Indiana-  $1MM or $2MM if GAAP used; $5k per investor
  • Kansas– $1MM; $10k per investor
  • Kentucky- $1MM or $2MM is GAAP used; $10k per investor
  • Maine- $1MM; $5k per investor
  • Maryland– $100k, $100 per investor
  • Massachusetts- $1MM or $2MM if the insurer provides independently reviewed and officer certified financial documents
  • Michigan– $1M or $2MM if the insurer provides independently reviewed and officer certified financial documents
  • Minnesota- $2MM or $5MM is GAAP used with periodic increases beginning in 2018
  • Mississippi- $1M; limited to qualified purchasers are defined in Code and none of the company’s officers and directors can purchase more than 15% of offering; notwithstanding, the limit is the greater of $50k or 10% of investors’ annual income or net worth if an “accredited investor” under Rule 501 of the S.E.C. OR the greater of $5,000 or 5% of the investor’s annual income or net worth is the investor is NOT an “accredited investor”
  • Montana– $1MM; $10k per investor
  • Nebraska- $1M or $2MM if GAAP used; $5k per investor
  • New Jersey- $1MM; $5k per investor, per offering
  • New Mexico– $2.5MM with no aggregate cap; $10k per investor per offering
  • Oregon- $250k; $2,500 per investor
  • South Carolina– Unlimited; Unlimited
  • Tennessee- $1MM; $10k per investor
  • Texas- $1MM; $5k per investor
  • Vermont- $1MM or $2MM if the insurer provides independently reviewed and officer certified financial documents; $10k per investor
  • Virginia- $2M; $10k per investor
  • Washington- $1M; the greater of $2k or 5% of the investors annual net worth per investor per year if the investor’s annual gross income or net worth is less than $100l or the lesser of $100k or 10% of investor’s annual net worth per investor per year if the investor’s annual gross income or net worth is over $100k
  • West Virginia- $1MM or $2MM if the insurer provides independently reviewed and officer certified financial documents; $10k per investor
  • Wisconsin- $1M or $2MM if the insurer provides independently reviewed and officer certified financial documents; $10k per investor (Cap may not apply if investor qualified as a Certified Investor under Wis. Stat. Section 551.102(4m).)
  • Wyoming-$1MM or $2MM if the insurer provides independently reviewed and officer certified financial documents; $5k per investor

 

My Thoughts: I like that South Carolina, whom many would argue is our biggest rival with respect to business competition, has an unlimited raise cap so companies are not restricted to how much money they can raise. However, as many states have done, I would suggest making sure that GAAP are used and that the financial statements are independent reviewed and audited before taking the cap off IGE. The cap on investor contributions should remain the same under IGE and not go to the complicated percentage scale so many states use based on income and/or net worth. Let’s keep it simple.

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I am Dar’shun Kendrick, Private Securities Attorney and Owner of Kendrick Law Practicehelping businesses raise capital the LEGAL way. We work with “for profit” companies seeking to raise $250,000 or more through private securities (equity and/or debt) that have a line item budgeted for legal services. We do NOT find investors or introduce companies to investors; that is the job of “broker-dealers” and we are prohibited under federal securities law from doing so.  I have 2 B.A.s from Oglethorpe University, a law degree from the University of Georgia and an M.B.A. from Kennesaw State University. I also serve as the ranking Democrat on the Georgia House Small Business Development and Job Creation Committee. View past and upcoming speaking engagements and request me to speak to your organization.

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Filed under capital raising, Georgia law, investor, legal compliance, private debt, private equity, securities

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