Can I use crowdfunding to raise money without violating securities laws in Colorado? What are the requirements?

To raise money through crowdfunding in Colorado without violating securities laws, you must comply with the Colorado Crowdfunding Act ^[1.1]. The Act provides an exemption from state securities registration requirements for intrastate offerings of securities conducted in compliance with the Act’s requirements.

Requirements for Issuers

• The issuer of the security must be a business entity organized pursuant to the laws of Colorado and authorized to do business in Colorado.
• The securities must meet the requirements of the federal exemption for intrastate offerings in section 3 (a)(11) of the federal “Securities Act of 1933”, 15 U.S.C. sec. 77c (a)(11), and the securities and exchange commission’s rule 147 adopted pursuant to said act, 17 CFR 230.147, for an intrastate offering being conducted in Colorado.
• The sum of all cash and other consideration to be received for all sales of the security pursuant to the exemption provided by this section must not exceed one million dollars during any twelve-month period; except that, if before offering and selling the securities, the issuer submits audited financial statements regarding the issuer to the securities commissioner, the sum must not exceed two million dollars.
• The aggregate amount sold to any purchaser during the twelve-month period preceding the date of the sale must not exceed five thousand dollars unless the purchaser is an accredited investor as defined by the securities and exchange commission’s rule 501 of Regulation D, 17 CFR 230.501.
• The issuer must make a notice filing with the securities commissioner on a form prescribed by the securities commissioner, including a consent to service of process in such form as the securities commissioner may require, not less than ten days before the commencement of an offering of securities pursuant to the exemption provided by this section.
• The issuer must pay the fee established by the securities commissioner.
• The issuer must provide the securities commissioner with a copy of the disclosure document to be provided to prospective purchasers.
• The issuer must provide the securities commissioner with a copy of an escrow agreement with a depository institution authorized to do business in Colorado in which the issuer will deposit the purchaser’s funds or cause the purchaser’s funds to be deposited.
• The issuer must maintain all records with respect to any offering conducted pursuant to the exemption provided by this section as the securities commissioner may by rule require.
• The issuer must establish both a minimum and a maximum offering amount, and deposit all funds raised from purchasers pursuant to the exemption provided by this section into an escrow account established pursuant to the escrow agreement.
• The issuer must inform all prospective purchasers of securities offered pursuant to the exemption provided by this section that the securities have not been registered pursuant to federal or state securities law and that the securities are subject to limitations on resale.
• The issuer must require each purchaser to certify in writing or electronically that they understand and acknowledge that they are investing in a high-risk, speculative business venture.
• The issuer must obtain from each purchaser of a security offered pursuant to the exemption provided by this section evidence that the purchaser is a resident of Colorado or, if the purchaser is an entity, is organized pursuant to the laws of Colorado and, if applicable, is an accredited investor.
• All payments for purchase of securities offered pursuant to the exemption provided by this section must be directed to and held by the depository institution specified in the escrow agreement.
• The issuer of securities offered pursuant to the exemption provided by this section must provide a disclosure document to each prospective purchaser at the time the offer of securities is made to the prospective purchaser that contains the information that the securities commissioner requires by rule.
• All sales pursuant to an offering or single plan of financing pursuant to the exemption provided by this section must meet all of the terms and conditions of this section.

Requirements for Online Intermediaries

• Before acting as an online intermediary for an offering pursuant to the exemption provided by this section, the online intermediary must file a statement with the securities commissioner, accompanied by the filing fee established by the securities commissioner.
• The online intermediary must consent to service of process in Colorado pursuant to section 11-51-706.
• The online intermediary must provide information that the securities commissioner requires by rule.

Note that the exemption provided by this section is not available if an issuer or a person affiliated with the issuer or offering is subject to disqualification established by the securities commissioner by rule or contained in the securities and exchange commission’s rule 506 (d) adopted pursuant to the federal “Securities Act of 1933”, 17 CFR 230.506 (d) ^[1.1].

Therefore, to use crowdfunding to raise money without violating securities laws in Colorado, you must comply with the above requirements.

Source(s):

• [1.1] Crowdfunding - intrastate offering of securities - online intermediaries - rules - fees - short title - legislative declaration.

Jurisdiction

Colorado

• General