ARTICLE
4 October 2014

New Jersey Crowdfunding Legislation In The Works

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Day Pitney LLP

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New Jersey is joining the coterie of companies, and now state governments, utilizing online crowdfunding for capital raising.
United States Corporate/Commercial Law

New Jersey is joining the coterie of companies, and now state governments, utilizing online crowdfunding for capital raising. Traditionally, crowdfunding was characterized by a large number of investors making small online contributions, receiving modest gifts of appreciation in turn. Now, certain pioneering states are allowing companies to give out shares of equity instead.

If passed, Senate Bill No. 712, pre-filed for introduction in New Jersey's 2014 session, would permit private, in-state companies to offer intrastate crowdfunding investment opportunities. The bill applies only to companies incorporated in New Jersey and allows for contributions not to exceed $1,000,000 total. Individual New Jerseyans investing $5,000 or less would be able to receive equity in return for their capital contribution. While some observers have noted the SEC's concern about using the intrastate offering exemption for equity-based crowdfunding as evidenced by recent compliance and disclosure interpretations, the New Jersey bill appears designed to meet the strict compliance and disclosure requirements of both the federal exemption for intrastate offerings in Section 3(a)(11) of the federal Securities Act of 1933 as well as Rule 147 adopted under the Securities Act of 1933.

Crowdfunding is also emerging in New Jersey's public sphere. Government entities may be able to independently raise funds online for specified projects, through the recently introduced Government Crowdfunding Act. If implemented, it would provide freedom for teachers to raise funds for supplies or interested citizens to fund a new athletic field or community center.

Under the proposed legislation, crowdfunding has the potential to inspire entrepreneurs to open new ventures, expand operations, market new products and cultivate in-state economic growth. Although many private companies and the government alike view crowdfunding as an inspired new option, others are not quite sold. The Venture Law Desk still wonders how service providers will react and whether companies will prefer a select few, well-connected investors to a sea of equity-holding Internet surfers.

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