The Washington State legislature has passed a crowdfunding bill, HB 2023. The Governor has yet to sign the bill, so it is not yet law. But hopefully it will be law soon.
If you are wondering what the new law will allow, I have put together the following summary for you.
- The bill would allow companies to raise up to $1M during any 12 month period.
- Companies could raise those funds from accredited or non-accredited investors.
- Companies would have to be organized or incorporated in Washington and doing business in Washington to use this law.
- Only Washington residents could invest (investors would have to provide evidence or certification of residency in the State of Washington at the time of purchase).
- The aggregate amount sold to any investor by one or more issuers during the 12-month period preceding the date of sale could not exceed:
- For investors with an annual income or net worth of less than $100,000, the greater of either (i) $2,000 or (ii) five percent (5%) of the investor’s annual income or net worth.
- For investors with an annual income or net worth of $100,000 or more, ten percent (10%) of the annual income or net worth of the investor, up to $100,000.
- Offerings would first have to be declared exempt by the Department of Financial Institutions before they could move forward.
- Companies would have to file with the DFI an escrow agreement providing that offering proceeds will be released only when the aggregate capital raised equals or exceeds a minimum target amount, as determined by the DFI.
- Companies would have to make ongoing disclosures to shareholders and the DFI for as long as securities sold using the crowdfunding exemption were outstanding.
- Companies could but would not be required to use a funding portal.
The bill would fill a void – at least for Washington entities and Washington residents – that federal law has not yet filled. As you may or may not be aware, the federal JOBS Act contains an equity crowdfunding provision, but the SEC has yet to finalize the regulations allowing crowdfunding. Let’s hope the Governor signs the bill!
Update: The Governor signed the bill yesterday, Friday, March 28. The next step is the Department of Financial Institutions will be working on rules.