Raising capital for a Minnesota business through crowdfunding with small investments from a large number of investors
In Minnesota, beginning June 20, 2016, eligible businesses can use a crowdfunding exemption from securities registration to raise investment funds by selling securities to Minnesota residents. The exemption is known as the “MNvest Securities Registration Exemption”—or, simply, “MNvest.”
MNvest is not administered by the Minnesota Department of Commerce or any other state agency. MNvest is only a shorthand reference to a 2015 amendment to the Minnesota Securities Act (Minnesota Statutes, section 80A.461).
General requirements for a crowdfunding offering under MNvest
Securities sold in Minnesota must be registered with the Commerce Department, unless they are “federal covered securities” or are exempt from registration. Most securities sold in Minnesota are also subject to federal registration requirements (which also include several exemptions). MNvest is an exemption from state registration requirements based on the assumption that the offering is also exempt from federal registration.
To use the MNvest exemption, a company must first demonstrate that its offering qualifies for the federal exemption from registration under Section 3(a)(11) of the Securities Act of 1933 and Rule 147 adopted thereunder.
Section 3(a)(11) provides an exemption from the securities registration requirements under federal law for offers and sales of securities that are made to residents of a single state where the issuer is organized and doing business within that same state.
In other words, Section 3(a)(11) exempts “intrastate” offerings from federal registration requirements. Rule 147 provides further guidance as to the availability of this intrastate exemption. In summary, Rule 147 provides that this exemption is available where:
- The issuer of the securities is incorporated or otherwise legally organized under the laws of the state in which the offers or sales of securities will take place;
- The principal office of the issuer is located within the same state;
- The issuer must derive at least 80% of its gross revenues from the operation of a business located within the same state;
- At least 80% of the issuer’s assets are located within the same state; and
- The issuer uses at least 80% of the funds raised in the offering for the operation of the business within the same state.
The above language is only an abbreviated summary of federal Rule 147. All of these requirements must be satisfied to rely on the federal intrastate exemption and to structure an offering under the state MNvest exemption.
If the offering qualifies under the federal intrastate exemption, the next step is to understand the state-level requirements for offerings under the MNvest exemption. Some of these requirements are discussed below.
However, all issuers relying on MNvest are responsible for reviewing and complying with the Minnesota Securities Act (Minnesota Statutes, chapter 80A) and implementing rules (Minnesota Rules, chapter 2876). Issuers should specifically focus on Minnesota Statutes, section 80A.461 and Minnesota Rules 2876.3050 – 2876.3060.