Finance

States Charge Ahead With Their Own Crowdfunding Laws

Senior Entrepreneurship Writer at CNBC
2 min read

Waiting for Washington could become the modern-day version of Waiting for Godot.

As federal crowdfunding legislation languishes on Capitol Hill, a handful of states have decided to press forward with their own equity crowdfunding legislation.

Michigan’s Senate unanimously passed legislation last week that would make equity crowdfunding legal in the state, according to a statement from the Michigan Municipal League. The bill originated in the House, and will need to go back to the House for a procedural approval vote before being signed into law by the governor. The bill is expected to pass.

"We are an arm's reach away from being able to assist a segment of our economy that will prove to be huge economic drivers, those new small businesses and those wishing to expand," Nikki Brown, a legislative associate for the Michigan Municipal League, said in a written statement.

Related: SEC Releases Long-Awaited Rules on Crowdfunding

Equity-based crowdfunding is where an individual invests into a company and in exchange becomes an owner of a percentage of the company. This differs from donation-based crowdfunding, where an individual receives a small gift in exchange for a financial donation, has been made popular on sites including Kickstarter and Indiegogo.

Historically, only accredited investors have been able to invest via equity crowdfunding. But the Jumpstart Our Business Startups Act, signed into law in April of 2012, made it legal for even non-accredited investors to participate in equity crowdfunding.

The Securities and Exchange Commission was tasked with making the rules for the legislation, and after blowing through several deadlines, finally released a provisional version in late October. The rules have a 90-day public comment period at which point the SEC will consider recommendations made and final rules will be handed down.

As the process for regulating equity crowdfunding on a national level drags on, states have begun accelerating the process for investors in their own state. In those states where equity crowdfunding legislation has been passed or is very close to being passed ahead of the federal legislation -- North Carolina, Georgia, Kansas, Wisconsin, Washington and Michigan -- only investors in that state can invest in businesses based in that state.

Related: What the U.S. Can Learn From the Netherlands About Equity Crowdfunding

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