The exemption was designed to allow most Oregon small businesses to participate in crowdfunded securities offerings. Your business may qualify to use Oregon's crowdfunding exemption if all of the following apply:
It is registered with the Oregon Secretary of State as a domestic (i.e., Oregon) business and has 50 or fewer employees;
Its principal place of business is in Oregon; and
It only offers and sells stocks (equity in a business), notes (secured debt), and debentures (unsecured debt).
The exemption is not available for any of the following:
Blank check companies (i.e., development stage companies with no specific business plan or purpose);
Companies that are involved in petroleum exploration or production, mining, or any other extractive industries; or
Investment companies under Section 4 of the Investment Company Act of 1940.
These types of companies are more speculative and carry higher risks to investors and, therefore, require a higher level of review by regulators.
Your business must meet the requirements above and those detailed in the Oregon Administrative Rules. To use the exemption, you will need to take the following steps:
Meet in person with a business technical service provider ("BTSP") to review your business plan.
File a notice (click here for the form) with the Division at least seven (7) days before advertising, offering, or selling any security. The notice must include a copy of the business's disclosures and advertising materials. It must also include specific information about the business, its owners, and officers. See Oregon Administrative Rule 441-035-0110 for the specific information needed.
Offer and sell the securities in accordance with the requirements under Section 3(a)(11) of the Securities Act of 1933.
No. This exemption is available only if you meet all of its requirements. Failure to comply with all of the rules could result in a finding by the Division that you sold unregistered securities. Penalties could be as high as $20,000 per violation and result in you being unable to use the crowdfunding exemption (or other exemptions to securities registration) in the future. You may also be required to refund any sales made in reliance on the exemption.
The sale of unregistered securities can also result in sanctions by other criminal, state, or federal agencies, or in an investor lawsuit.
Remember, in a court case, you have the burden of proving that you met all of the exemption's requirements. We urge you to keep detailed records related to transactions under these rules.
You need to disclose all material information prior to the sale of any security. In the most general sense, information is considered material if it would likely alter the "total mix" of information available to a reasonable investor. If it could impact a prospective investor's investment decision, it is most likely material information" and should be disclosed.
The rules require that specific information be included in the offering documents, including any factors that make an investment in your business speculative or risky. While no one wants to think (and tell prospective investors) about the downside of the investment decision, disclosing risk factors can protect your business at the same time it protects investors. Well-thought-out risk factors can protect you against later claims by investors that they were not informed of the risks of the investment. (And, investors, be sure you read and understand the risks of your investment). Well-thought-out risk factors will avoid generalized statements; they will be specific to your business. Sample risk factors could include:
There is no current market for the securities, and they can only be transferred under specific circumstances, so an investor may never be able to sell the securities.
You have never managed a business before and so your management and business decision-making are untested and may affect the business’s profitability or even survival.
You have managed a business before but it failed, and this business may also fail.
The business is highly dependent on the weather and a drought or heatwave may devastate your crops, causing you to be unable to pay back your obligations.
The business is a sole proprietorship or dependent on a few key employees. If something happens to the sole proprietor or the employees, the business may not be able to continue its operations.
You are offering a note, but you are not setting money aside (a sinking fund) to pay back the note. Because you are not setting aside money, you may not be able to pay the note and promised interest when it matures.
Your business model is to manufacture and sell a niche product. You have never seen the idea anywhere else, so you are not sure how broad the niche is. There may not be a ready market for your product.
You can find other examples of risk factors in Appendix A to the NASAA Small Corporate Offering Manual
[Updated March 24, 2015]
Businesses can raise up to $250,000 in total funding under the crowdfunding exemption. Businesses cannot raise more than $2,500 from any one individual. Be careful if you will need to raise additional capital for your business at the same time (or shortly before or after) conducting a crowdfunding offering. For example, let's say your business needs $2.5 million in operating funds and intends to raise 10 percent of that amount through a crowdfunding offering. Offers and sales of the remaining 90 percent would likely be considered part of the same offering, thus eliminating the ability to use the exemption.
Factors that will be considered when evaluating parallel offers include:
Sales are part of a single plan of financing;
Sales involve the issuance of the same type of security;
Sales are made at or about the same time; and
The sales were made for the same general purpose.
Generally, sales of securities made more than six months before or after sales under the crowdfunding rules will not be considered to be made under the crowdfunding rules.
While other exemptions may be available, each has its own requirements and you will need to comply with all the requirements of whatever path you choose. If you have questions about whether multiple paths of financing may be considered a single offering, you should consult a lawyer.
[Updated March 24, 2015]
There are a number of ways for small Oregon businesses to raise money through the offer or sale of securities. Other methods do not have total offering caps, individual investor limits, or restrictions on general advertising or solicitation and might be more suitable for your business. You should carefully consider how much funding you need for a specific product or expansion and whether this exemption is the most suitable for your needs.
Also remember that if you are trying to raise money through equity shares, you are selling ownership and control of your business. If you are offering a note or a debenture, you are committing to pay back the money with interest and under specific terms.
BTSPs are organizations that have been specifically organized to provide assistance to small businesses. The Division has automatically approved the small business development centers and the economic development districts to act as BTSPs. Here is a listing of small business development centers. Here are the Oregon economic development districts.
In addition, other nonprofit accelerators and incubators may apply to be BTSPs. So far, the Division has only approved one of these entities to act as a BTSP.
Because the BTSP's mission is to provide assistance to small businesses, the Division anticipates that BTSPs will provide guidance regarding business plans and other information they need to succeed. A BTSP is typically not a lawyer, securities broker-dealer, investment adviser, or an expert in securities law. It cannot give advice regarding the securities offering (unless it is specifically licensed to do so).
Keep in mind the rules require any business wanting to use the crowdfunding exemption to certify that a person responsible for the business has met with a BTSP and that the BTSP has reviewed its business plan.
For more information on business technical service providers, click here.
No. The Division of Finance and Corporate Securities can provide general interpretations of the rules, but is prohibited from offering specific legal or investment advice. Securities can be tricky; if you have questions, your best option is to seek the advice of a lawyer.
You can send specific questions to the Division about whether, and how, parts of the rule would apply to your business. We can answer questions about whether a specific rule, or provisions that we administer, applies to your specific business, but we cannot give legal advice or help with preparing a crowdfunding offering.
[Updated March 24, 2015]
Securities are regulated at the federal level as well as by the states, so when selling securities you need to be aware of both state and federal laws. Like Oregon securities law, federal securities law requires most investment securities to be registered before they can be offered or sold. And, like Oregon law, the federal securities law creates certain exemptions from registration if the issuer follows all the terms of the exemption.
Section 3(a)(11) of the Securities Act of 1933 is an exemption to the securities registration requirements under the federal securities law for securities offered or sold only within a state to residents of that state (i.e., an "intrastate" offering). This is why the crowdfunding exemption in Oregon is only available to Oregon residents. The Securities and Exchange Commission ("SEC") adopted Rule 147, which provides a non-exclusive safe harbor under Section 3(a)(11). Under Rule 147, an Oregon business is a "resident and doing business" in Oregon if all of the following apply:
It is incorporated or organized under Oregon law;
It derives at least 80 percent of its gross revenues during its most recent fiscal year prior to the offering from the operation of its business in Oregon;
At least 80 percent of the business's assets at the end of its most recent semi-annual period prior to the offering are located in Oregon;
The issuer intends to use at least 80 percent of the net proceeds of the offering in connection with the operation of its business in Oregon; and
The business's principal office is located in Oregon.
Oregon's Intrastate Offering Exemption was designed to promote compliance with the federal Securities Act, and specifically Section 3(a)(11). The Oregon rules require that the offer and sale of crowdfunding securities be conducted in accordance with the requirements under Section 3(a)(11). Because of the federal requirements, strict compliance with the state rules is important.
[Updated March 24, 2015]
It depends. Under SEC interpretations of Rule 147, the issuer of a security may engage in general advertising or solicitation if it is made only to residents of that particular state.
In order to ensure that businesses comply with that requirement, Oregon's crowdfunding rules require that before engaging in any general advertising or solicitation, an issuer (or a third-party platform advertising on behalf of an issuer) obtain an "affirmative declaration" from an interested investor that the investor is an Oregon resident. Such "affirmative declaration" can be accomplished by requiring that an interested person provide his or her ZIP code or check a box on a webpage stating "I am an Oregon resident" before viewing any advertising materials.
Advertising under the rules is limited to no more than the following information:
The name and contact information for the issuer.
A brief description of the general type of business of the issuer.
Whether the securities being offered are stock, notes, debentures, or a combination.
The total offering amount.
A brief description of how the issuer will use the funds.
The duration of the crowdfunding offering and the funding deadline.
The issuer's logo.
A link to the issuer's website or third-party platform on which the securities will be offered or sold and the required disclosures made available.
Keep in mind that the definition of "offer" under the federal and Oregon securities law is broad. Offers can include statements meant to "condition the public mind" or "arouse public interest in" a securities offering. In other words, promoting investment in your business while you have an active crowdfunding offering needs to be done carefully. It can subject you to the advertising rules, even if you don't think you are expressly "offering" your securities. Be careful about what public statements you make during the period you are offering and selling securities in reliance on this exemption. See also the "Can I use the Internet" section below for more information.
It depends. A person is generally considered a resident of Oregon if the place they live most of the time is in Oregon. Because the federal Securities and Exchange Commission (SEC) drafted Rule 147, we defer to the interpretations the SEC provides. In 2009, the SEC addressed Rule 147 and residency this way:
"Question: May an issuer rely on Rule 147 to offer or sell securities within a single state to a person whose principal residence is in such state but who resides temporarily out of the state?
For the purposes of the crowdfunding exemption, a person doesn't need to have been born in Oregon (or even the U.S.) or spend 100 percent of their time in Oregon in order to be residing in Oregon.
[Updated March 24, 2015]
Yes, securities may be advertised on an issuer's website or through a third-party platform's website. The circumstances under which an issuer or third party may advertise through the Internet, however, are specific. Because federal securities law also governs the registration and sale of securities, issuers must make sure to sell their securities in accordance with the requirements of both the Oregon crowdfunding rules and Section 3(a) (11) of the federal Securities Act. We urge you to read the rules carefully before advertising, offering, or selling securities over the Internet.
Businesses that want to offer securities through their website must remember that the offer and sale can only be made to Oregon residents and that a prospective investor must make an "affirmative declaration" before viewing any advertising or offering materials. This means that businesses cannot advertise or offer securities on webpages that can be viewed by everyone around the world. Businesses must use a separate webpage on their website that requires interested people to affirmatively declare that they are an Oregon resident before being able to view the page with the material that advertises or offers the security. A business can include a link to the Oregon-only webpage on its general website for interested Oregonians to follow to "learn more about supporting this business" or "to learn more about investing in this business."
Because the definition of "offer" is broad, businesses are encouraged to include only factual information about themselves on the generally accessible sections of their websites. Under state and federal law, "forward looking statements," such as talking about future development, product lines, or long-range plans, could be considered an offer to sell securities under Section (3)(a)(11) and should be made only to Oregonians if you are seeking to use the crowdfunding exemption.
Businesses can also post their advertising and offering materials on a website that is hosted by a third-party platform provider. Such third-party platforms may be used to post disclosures and advertisements, but they may not act as investment advisors or broker-dealers (unless they are specifically licensed to do so). This means that they cannot endorse specific businesses or securities offerings on their platforms. The third-party platform provider must also ensure that prospective investors have provided some sort of affirmative declaration that they are Oregon residents before viewing any advertising or offering materials. Third-party platforms may charge issuers a nominal fee for hosting a platform.
While an individual business may sell its securities on an "Oregon only" portion of its website, a third-party platform cannot sell securities unless it is a licensed broker-dealer. Even licensed broker-dealers are not allowed to collect commission on sales of crowdfunding offerings.
If a website collects financial or personal information about prospective investors, it must take steps to ensure that the information is kept secure and private.
In the Internet age, most media coverage is not limited to a single state --for instance, Portland, Oregon and Vancouver, Washington are considered a single media market; most radio programs and newspaper articles can be accessed from anywhere in the world through a website. This can cause problems for businesses using an intrastate exemption from securities registration.
Because Section 3(a)(11) requires that offers and sales of securities only be made to residents of the state where the business has its principle office, communications that are meant to induce, excite, or entice a person's interest in the security must be limited to people residing in Oregon. Talking about your business's past or even current products and services is usually not enough to be considered an "offer." However, "forward looking statements," such as talking about future development, product lines, or long-range plans, would likely be considered an offer to sell securities. When you talk about raising money for your business - including how much you want to raise, why you want to raise it, what you plan to do with the money, or how much you have already raised - that begins to look like an offer of a security and must be limited to residents of Oregon.
Remember, it is up to you to prove that you complied with an exemption. If you don't have an exemption, you must register your securities.
[Updated March 24, 2015]
There are a number of options for selling crowdfunded securities over the Internet (you can also sell your securities in person). An issuer can use its own website to sell its own securities under the exemption or it can use a third-party licensed money transmitter to accept payment. While a BTSP cannot handle investor funds (unless it is a licensed money transmitter), a BTSP can redirect investor funds through a licensed money transmitter.
The rules require that issuers of crowdfunded securities have a reasonable basis for believing that a purchaser is an Oregon resident. If you use the Internet to sell your securities, you will need to be able to accommodate investors uploading or otherwise sending you documentation demonstrating that they are Oregon residents before a sale takes place.
Remember, if you accept payment or collect personal information over the Internet, you have a duty to take steps to make sure the information is kept private and secure.