Putting North Carolina Through the PACES: Bringing Intrastate Crowdfunding to North Carolina Through the NC PACES Act
Putting North Carolina Thr ough the PACES: Bringing Intrastate Crowdfunding to North Carolina Thr ough the NC PACES Act
C. Marshall Horsman III 0
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Recomme nded Citation C. Marshall Horsm an III, Putting North Carolina Th rough the PACES: Bringing Intrastate Crowdfunding to North Carolina Th rough the NC PACES Act, 38 Campbell L. Rev. 425 (2016).
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Article 5
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Putting North Carolina Through the PACES:
Bringing Intrastate Crowdfunding to North
Carolina Through the NC PACES Act
The nationwide increase in the number of small businesses over the past
severalyears has led to more small businesses, startups, and entrepreneurs
seeking capital investments from the general public in order to build and
grow their businesses. In an effort to attract investors, businesses have
taken an interest in securities crowdfunding, a methodfor raising capital
whereby businesses offer stock in their companies in exchange for capital
from investors. While an offering of securitiesgenerally must be registered
with the United States Securities and Exchange Commission, companies
can circumvent the registration requirement by utilizing one of the
available exemptions provided by federal statute. This Comment focuses
primarily on the intrastate exemption, which allows businesses to sell
securities if the offering is wholly containedwithin a single state, but only
if that state has given businesses the option to use that exemption. Since
2011, over half of the states have passed legislationpermittingbusinesses
within those states to take advantage of the intrastate exemption. North
Carolina, through the NC PACES Act, is considering passing such
legislation, yet that bill has been stalled in the North Carolina General
Assembly since April of 2015. This Comment highlights the benefits that
North Carolinacan enjoy by allowing intrastatesecurities crowdfunding
andultimately callsfor the GeneralAssembly to pass the NC PA CES Act.
INTRODUCTION ......................................... ......... 426
I. UNDERSTANDING THE CURRENT SECURITIES CROWDFUNDING
LANDSCAPE..............................................428
A. BackgroundandDefinitions ................. ...... 428
B. Intrastate Crowdfunding ............................... 430
C. Role of the Securities andExchange Commission...................432
D. The JumpstartOur Business Startups (JOBS) Act .................. 432
II. THE DEBATE OVER SECURITIES CROWDFUNDING ........ ...... 437
A. Tensions Within Securities Crowdfunding.... .......... 437
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[Vol. 38:425
INTRODUCTION
In late 2009, a small rural town nestled in the southwestern corner of
Kansas found itself with a serious problem few Americans have ever
fathomed: the residents of Minneola, Kansas had nowhere to buy
groceries.' When the town's only grocery store unexpectedly shut down,
the community of around 800 residentS 2 felt compelled to take action. 3 A
group of community leaders began exploring the town's options to bring a
grocery store back to Minneola and eventually discovered the Invest
Kansas Exemption (IKE).4 The Invest Kansas Exemption is a piece of
legislation that, upon its passage in August 2011, became the first intrastate
equity crowdfunding exemption to be adopted by any state.s Through IKE,
the residents of Minneola were able to form a corporation and begin selling
shares of stock to members of the community. 6 In all, 4,000 shares were
sold, netting $200,000 to be used for the re-opening of the town's grocery
store.7 As the number of shares sold grew, so did Minneola's sense of
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427
ownership. A few months later, thanks to the capital raised and the
volunteer labor of several dozen community members, Hometown Market
opened its doors on March 7, 2012.9
Minneola's Hometown Market is the story of one of the first
successful utilizations of intrastate crowdfunding. As this small, rural
grocery store continues to thrive, so does national interest in using
crowdfunding to offer and sell equity securities. On April 5, 2012, the
Jumpstart Our Business Startups (JOBS) Act'o became law." Despite
having not yet gone fully into effect, this law has, over the past three years,
slowly progressed toward its purpose of making several types of federal
securities crowdfunding a reality. Along with this effort to introduce
securities crowdfunding at the national level a reality, over two dozen
different states have followed Kansas's lead and enacted intrastate
crowdfunding exemptions of their own.' 2 While states continue to adopt
these exemptions, the debate over the benefits and risks associated with
securities crowdfunding persists. As the North Carolina Providing Ac (...truncated)