State Corporation Commission adopts regulations regulating crowdfunding efforts in Virginia
Virginia companies have the opportunity to make crowdfunding offerings within the Commonwealth beginning July 31. The State Corporation Commission (SCC) has adopted regulations for implementing Virginia’s new crowdfunding exemption law adopted by the 2015 General Assembly.
Crowdfunding allows businesses to raise funds by selling shares through public advertising. Many of these general solicitations occur via the Internet.
As an exemption that applies only to offers within Virginia, the regulations establish the criteria by which such offerings are exempt from the more detailed registration requirements of the Virginia Securities Act. Thus, the exemption facilitates low-cost capital formation for small businesses.
The Virginia crowdfunding exemption permits companies to raise up to $2 million in the aggregate, and up to $10,000 from each investor. Certain “accredited” investors may contribute more depending on their overall net worth.
The new rules require a company to file with the SCC’s Division of Securities and Retail Franchising a “disclosure statement” at least 20 days before starting a crowdfunding offer. This statement must be provided to any potential investor. Once a company raises money through the state exemption, it is required to provide an annual report to investors for a period of three years after the close of the offering.
The SCC’s director of the Division of Securities and Retail Franchising Ronald W. Thomas says, “The regulations have a dual purpose. They provide investors with appropriate disclosure and safeguards and provide another valuable tool that small companies can use to raise capital.”
The 2015 legislation allows the Commission the flexibility to adjust the regulations depending upon how the financing community is able to use the new exemption. The Securities Division will monitor crowdfunding activity and make recommendations for changes when necessary.
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