With Governor John Hickenlooper recently signing the Colorado Crowdfunding Act into law, which will allow the state’s residents to be able to stock in local companies without becoming an accredited investor, Colorado’s Division of Securities Commissioner Gerald Rome shared key aspects of the new bill and what it means to investors and businesses in the state.
During his recent interview with the Denver Business Journal, Rome stated:
“With the new law, our state has joined the growing list of states that are opening up private company investing to everyone. But before small businesses begin using crowdfunding to solicit investments, there are some key aspects of the Colorado Crowdfunding Act that prospective businesses and investors should take note of.
“First, before a crowdfunding offering can proceed, it must be properly registered with the Colorado Securities Division, a division in the Colorado Department of Regulatory Agencies (DORA). Online intermediaries, through whom the crowdfunding transactions will be conducted, must also register with the Colorado Securities Division. Rules for this process are forthcoming.
“Second, there are limits to how much capital can be raised and how much individual investors can contribute. The act states that the issuer of the securities can raise up to $1 million in total assets. However, the cap can be raised to $2 million if the business submits audited financial statements to the Colorado Securities Division. Individual investors cannot contribute more than $5,000. If an investor is accredited, the $5,000 cap is removed. An “accredited investor” is defined as having an earned income that exceeds $200,000, or a net worth that exceeds $1 million.
“The final item to be aware of is that all aspects of the transaction must take place only between Colorado residents. Crowdfunding transactions that reach outside of Colorado run the risk of violating federal securities laws. The Jumpstart Our Business Startups (JOBS) Act of 2012 technically made equity crowdfunding legal at the federal level. However, the Securities and Exchange Commission has yet to outline rules that would permit national crowdfunding offers to proceed.”