Below is an article by The Herald News entitled “Crowdfunding is a new way for Mass. residents to support local businesses"
Crowdfunding is a new way for Mass. residents to support local businesses
By: Judd Hollas, The Herald News Contributor
Feb 25, 2015
The Massachusetts Securities Division has made it much easier to raise capital for startups and small businesses within the state by adopting the Massachusetts Crowdfunding Exemption. This exemption, which went into effect on Jan. 15, allows almost any business incorporated in Massachusetts to offer and sell securities online to state residents. It’s designed to create new jobs and boost the state’s economy by providing greater access to capital for businesses while maintaining necessary protections for investors.
Decades of research have proven that the lack of capital is a key reason why companies fail, and as many entrepreneurs will attest, funding is not always readily available. By leveraging the investing power of Massachusetts residents, this exemption will make capital more accessible, at a lower cost, and in a shorter timeframe.
Under the exemption, businesses can raise up to $1 million in a 12-month period with unaudited financial statements, or up to $2 million if the business has audited financial statements. Businesses are required to provide “full and fair” disclosure of material facts related to the business and its offering which includes a description of the company, risks involved with the offering, and a description of the planned use of the proceeds.
The exemption, however, is not available to all businesses. Investment companies, hedge funds, blind pool offerings, and other types of pooled investment vehicles are prohibited. Businesses involved in oil and gas exploration or production, mining, and other extractive industries are also prohibited from using the exemption.
Investors are also subject to certain limitations. If an investor’s income or net worth is less than $100,000, he or she can invest either $2,000 or 5 percent of his or her annual income, whichever is greater. If an investor’s income or net worth is equal to or greater than $100,000, he or she can invest 10 percent of his or her annual income or up to $100,000.
For Massachusetts investors, the exemption will create a whole new asset class. It could allow them to potentially increase their total returns from their investment portfolios over time and have a hand in aiding their local economies in the process.