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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).  

Important Notice Regarding Changes to the MNvest Law

During the 2017 legislative session, the statute that regulates MNvest was changed. The changes are effective as of: April 20, 2017.
Read the specific changes to the MN Statute §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, Rule 147 and Rule 147A 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 and Rule 147A  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; or
  • 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 and Rule 147A. 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.

Disclaimer for crowdfunding

Equity crowdfunding offerings are different from donation-based crowdfunding campaigns through websites like Kickstarter or GoFundMe. Unlike donation-based crowdfunding, equity crowdfunding involves the issuance of securities—meaning investors expect to receive something in return for their investment. 

Undertaking a securities offering is a serious matter. It can be costly and will take time away from running your business. While business owners and personnel can prepare the information requested on the MNvest notice form and file the appropriate documents with the Commerce Department, it is often beneficial to seek the assistance of counsel experienced in securities law to fully understand options and obligations surrounding the sale of securities.

The purpose of the information on this website is to introduce small businesses to the concept of raising capital through the MNvest crowdfunding exemption. It should not be relied upon to actually make a securities offering. There are many additional important issues that should be considered before making a securities offering. This information summarizes only some of the issues involved in conducting a crowdfunding offering.

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