The NC PACES Act: “Providing Access to Capital for Entrepreneurs and
Small Business” has been passed by the NC House by a vote of 114 to 0, the NC Senate by a vote of 49 to 0, and is now headed to Governor McCrory for his signature. After 3.5 years in the making, intrastate investment crowdfunding is finally coming to North Carolina!
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| Senator Tamara Barringer |
Senator Tamara Barringer,
co-sponsor of the bill, states: “The NC PACES Act has passed the North Carolina
House and Senate unanimously, paving the way for small businesses to raise much
needed capital, providing jobs and opportunities for North Carolinians.”
What does this mean?
A North Carolina business will be able to raise up to $1 million in any
12-month period (or up to $2 million with audited or reviewed financial
statements) from investors who are North Carolina residents. There are no wealth or income limitations on
who can invest; however, investors who are not “accredited” may only invest
$5,000 in a particular venture in any 12-month period.
Companies will be permitted to
promote the offering publicly, after filing a notice (as well as substantive
disclosures) with the Securities Division of the North Carolina Secretary of
State. A fee of $150 will also be
charged. Companies are required to
communicate in writing the business plan, financials, use of funds, and risks
of the offering. Investors are required to certify in writing at the time of
sale that they understand the risks of purchasing unregistered securities and that
they may lose their entire investment.
Companies may (but are not required to) use a
professional crowdfunding intermediary that meets the requirements established
by NC PACES and related rules. They are
required to establish an escrow to hold funds prior to closing.
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| Benji Jones |
Companies that issue securities
under NC PACES will be obligated to provide quarterly reports to investors discussing
management compensation, operating results, and financial condition, etc.
When can we start?
Companies can start gathering materials, preparing disclosures, and
consulting advisors now. However, you
will not be able to formally pursue investors under NC PACES until the
Securities Division of the North Carolina Secretary of State’s office adopts
specific rules to implement the provisions of the Act. The Secretary of
State’s office has played a critical role in formulating this exemption and,
although the law gives it a 12-month period to act, hopefully, it will give
implementation of these rules highest priority.
There are some details to iron out so stay tuned here for more
updates.
Benji Jones is a partner at the Ward and Smith law firm with extensive experience in representing companies in exempt and non-exempt securities offerings. Feel free to reach out directly to the author with questions or comments.
