Can Your Business Benefit from New Crowdfunding Rules?

Date: May 02, 2017

Your business now has a new way to access funding, thanks to a new crowdfunding law that went into effect last month.

Local Public Offerings, or LPOs, allow North Carolina businesses to go directly to a variety of state investors with funding pitches of up to $250,000. Companies can do so with personal sales pitches or advertising, both of which were restricted or banned in the past if the offerings weren’t registered with regulators. By using LPOs, the businesses also wouldn’t be required to use a registered crowdfunding platform or investment/funding broker.

Though designed to be a simple and streamlined way for entrepreneurs and small business owners to access funding for company growth, there are still measures in place to ward against fraud. For example, companies pursuing LPOs must complete filing requirements, receive approval from the North Carolina Secretary of State’s office, and file advertising materials.

Under the new crowdfunding rules, the investment cap has been raised to $2 million (federal regulators stop at $1.1 million), and businesses raising less than $1 million wouldn’t have to provide prospective investors with reviewed/audited financial information. Investors must be residents of North Carolina. Non-accredited investors without annual net income of more than $200,000 or net worth of more than $1 million could only invest $5,000 per company in a 12-month period.

Given that LPOs are a very new way for businesses to obtain investment funds, they are currently permitted on a trial basis until April 1, 2020. At that point, the Secretary of State can reauthorize the program after assessing whether they’re working for both businesses and investors.

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