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

Requirements for Crowdfunding in Tennessee

To raise money through crowdfunding in Tennessee, you must comply with the requirements set forth in TNCO 48-1-125.

Covered Securities

The requirements for crowdfunding depend on whether the security being offered is a “covered security.” A covered security is defined in § 18(b) of the Securities Act of 1933 and includes securities listed on national securities exchanges, certain investment securities, and securities issued by certain entities, among others [1.1].

Crowdfunding Offering

If the security being offered is a covered security under § 18(b)(4)(C) of the Securities Act of 1933, the issuer must file a notice with the commissioner consisting of a completed Uniform Notice of Federal Crowdfunding Offering form or copies of all documents filed with the securities and exchange commission, a consent to service of process, and a nonrefundable filing fee of $500 [1.1].

If the issuer has its principal place of business in Tennessee, the filing must be made concurrently with the initial Form C filing with the SEC. If the issuer does not have its principal place of business in Tennessee but residents of Tennessee have purchased 50% or more of the aggregate amount of the offering, the filing must be made no later than 30 days from the date of completion of the offering [1.1].

Regulation A Offering

If the issuer is planning to offer and sell securities in Tennessee in an offering pursuant to Tier 2 of Regulation A, the issuer must submit a completed Regulation A-Tier 2 notice filing form or copies of all documents filed with the SEC, a consent to service of process, and a nonrefundable filing fee of $500 at least 21 days prior to the initial sale in Tennessee [1.1].

Filing and Fee Requirements

For all issuers, except those offering securities pursuant to Tier 2 of Regulation A, a notice consisting of all documents filed with the SEC must be filed with the commissioner prior to a sale of such security in Tennessee. The notice must also include a consent to service of process and a nonrefundable filing fee of $500 [1.1].

Civil Penalty

It is unlawful for any person to sell any security in Tennessee unless it is registered under TNCO 48-1-104, exempted under § 48-1-103, or the security is a covered security [1.2]. The commissioner may impose a civil penalty against any person found to be in violation of this section, or any rule or order adopted or issued under this section, in an amount not to exceed ten thousand dollars ($10,000) per violation, or in an amount not to exceed twenty thousand dollars ($20,000) per violation if an individual who is a designated adult is a victim [1.2].

Renewal and Amendment Requirements

Notice filings made pursuant to TNCO 48-1-125 are effective for one year from the date of filing and may be renewed by making a filing and paying a fee. Amendments to a notice filing must be filed with the commissioner and may require a processing fee [1.1].

Conclusion

To raise money through crowdfunding in Tennessee, you must comply with the requirements set forth in TNCO 48-1-125. The requirements depend on whether the security being offered is a covered security and whether the offering is pursuant to Tier 2 of Regulation A. A notice filing must be made with the commissioner prior to a sale of the security in Tennessee, and a nonrefundable filing fee of $500 must be paid. The notice must include a consent to service of process. Renewal and amendment requirements also apply. It is also important to note that it is unlawful to sell any security in Tennessee unless it is registered under TNCO 48-1-104, exempted under § 48-1-103, or the security is a covered security. A civil penalty may be imposed for violations of this requirement [1.2].

Source(s):
Jurisdiction

Tennessee