Jump to Navigation

Crowdfunding in Maryland

December 8 , 2014

There are several exemptions from the registration provisions of the securities laws. On October 1, 2014, a new one became effective in Maryland- the Maryland "Crowdfunding" law. To those who have looked at the new statute, it represents either a significant benefit to small businesses or the least helpful business legislation ever passed- anywhere!

Let's take a look. The new law can be found in MD Corp. and Assoc. Code Section 11-601(16). Here are the key provisions.

The law provides an exemption from the registration provisions of the Maryland Securities Act for offerings up to $100,000.

Although the law provides that the exemption is available for any type of security, whether debt or equity, the Maryland Securities Commissioner has issued an order that limits the exemption to promissory notes, that is, debt offerings. A company would have to petition the Securities Commissioner to use the exemption for a stock offering.

Even so, what's not to like? How about this: an investor can only invest $100 in a particular offering. No, that is not a typo; $100 is the limit. The company would need to have 1,000 investors to hit the $100,000 limit! What if the investor is an "accredited investor" under the SEC's Regulation D, that is, the investor has an income or net worth that enables the investor to fend for him or herself in private placements. No matter- the Maryland law says you cannot invest more than $100.

Wait. There's more. All of the investors must be Maryland residents. So don't even think about allowing your brother-in-law who lives in Tyson's Corner to invest. Further, the company must be organized under Maryland law and have its principal place of business in Maryland. All of those Delaware corporations and LLCs need not apply. And here is the icing on the cake. A disclosure document must be delivered to the potential investor that contains the kind of information typically contained in a private placement memorandum for substantially larger investments.

Oh, one more thing- within 15 days of the first sale, a form must be filed with the Maryland Securities Commissioner and a fee paid of $100.

So, the next time your company wants to raise $100,000 by bringing in 1,000 investors, all Maryland residents and all creditors, perhaps this is the exemption for you. Is this new law a boon for small businesses in Maryland or the least helpful business law ever? You tell me.

As always, your comments are welcome.

Frank R. Goldstein
Law Office of Frank R. Goldstein LLC
240-505-8951
[email protected]

240-505-8951

Contact

Law Office of Frank R. Goldstein LLC
3030 Mill Island Parkway, Suite 308
Frederick, MD 21701
Phone: 240-505-8951
Map and Directions

Contact Us

Bold labels are required.

Contact Information
disclaimer.

The use of the Internet or this form for communication with the firm or any individual member of the firm does not establish an attorney-client relationship. Confidential or time-sensitive information should not be sent through this form.

close