Part 2: New Michigan Law Permits Intrastate Crowdfunding
Part 1 of this series discussed the 12 basic requirements that must be met to utilize Michigan’s new intrastate crowdfunding exemption.
This post will take a deeper look at Requirement 2. As noted in Part 1, Requirement 2 states that the offer must meet the requirements for the federal exemption for intrastate offerings under Section 3(a)(11) of the Securities Act of 1933 (the “1933 Act”).
In general, the requirements of Section 3(a)(11) of the 1933 Act are satisfied by complying with SEC Rule 147. So, let’s take a look at Rule 147.
Rule 147 states that an offering will meet the requirements for the federal exemption for intrastate offerings under Section 3(a)(11) of the 1933 Act if certain conditions are satisfied. The main requirements of Rule 147 are described below.
- Requirement 1. The issuer must be incorporated or organized in the State of Michigan.
- Requirement 2. The issuer must be doing business in the State of Michigan. The issuer will be deemed to be doing business in the State of Michigan if the issuer: (A) derives at least 80 percent of its gross revenue from the operation of a business in or from the rendering of services within the State of Michigan, (B) has at least 80 percent of its assets located in the State of Michigan, (C) intends to use and uses at least 80 percent of the net proceeds from the offering in connection with the operation of a business located in the State of Michigan, and (D) has its principal office in the State of Michigan.
- Requirement 3. Offers and sales of securities can be made only to persons that are residents of the State of Michigan.
In addition to the main requirements described above, issuers also need to satisfy several other conditions in connection with Rule 147, including placing certain legends on stock certificates and limiting certain resales.
Please contact me if you have questions regarding Michigan’s new crowdfunding exemption or raising capital in the State of Michigan.
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