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Can I offer equity to investors without violating securities laws in Michigan? What are the requirements?

Offering Equity to Investors in Michigan

To offer equity to investors in Michigan without violating securities laws, you may be able to rely on the exemption provided under MICL 451.2202a. To qualify for this exemption, the offer or sale of the security must meet the following requirements:

  1. The issuer of the security must be an entity that is incorporated or organized under the laws of Michigan, is a resident of Michigan under SEC rule 147 or 147A, and is authorized to do business in Michigan.
  2. The transaction must meet the requirements for the federal exemption for intrastate offerings under 15 USC 77c(a)(11) and SEC rule 147 or 147A.
  3. The sum of all cash and other consideration to be received for all sales of the security in reliance on this exemption does not exceed $1 million or $2 million, depending on whether the issuer has made available audited financial statements or reviewed financial statements for the issuer’s most recently completed fiscal year.
  4. The issuer has not accepted more than $10,000 from any single purchaser unless the purchaser is an accredited investor.
  5. At least 10 days before an offer of securities is made in reliance on this exemption or the use of any publicly available website in connection with an offering of securities in reliance on this exemption, the issuer files a notice with the administrator, in writing or in electronic form as specified by the administrator.
  6. The issuer is not an investment company or subject to the reporting requirements of the securities exchange act of 1934.
  7. The issuer informs each prospective purchaser that the securities are not registered under federal or state securities laws and that the securities are subject to limitations on transfer or resale.
  8. The issuer requires each purchaser to certify in writing that they understand and acknowledge the risks involved in the investment and that they are a Michigan resident at the time the contract is formed.

If the offer and sale of securities is made through an internet website, additional requirements must be met [1.1].

Additionally, if you are offering equity to investors in Michigan, you may need to register as a Michigan investment market under MICL 451.2455. To register, you must file a written application, file a consent to service of process that complies with section 611, and pay the fee specified in section 457. If you comply with the requirements and demonstrate by clear and convincing evidence that you meet the requirements for registration, the administrator shall register you as a Michigan investment market [1.2].

Certain transactions are exempt from the requirements of sections 301 to 306 and 504, including an isolated nonissuer transaction, whether effected by or through a broker-dealer or not, and a nonissuer transaction by or through a broker-dealer registered or exempt from registration under this act, and a resale transaction by a sponsor of a unit investment trust registered under the investment company act of 194 [1.3].

It is important to note that this response is not legal advice and you should consult with a licensed attorney for specific guidance on your situation.

Source(s):
Jurisdiction

Michigan