WHAT IS CROWDFUNDING?
Crowdfunding is the practice of funding a project or venture by raising small financial contributions from a large number of people. Under Montana law, a company wanting to solicit Montana investors will need to register its securities with the CSI Securities Division. However, a Montana-based company seeking to solicit Montana investors is exempt from the securities registration process—as described below.
The crowdfunding exemption is intended to assist Montana start-up companies and other small business issuers in accessing capital in small securities offerings through crowdfunding. The exemption is intended to reduce the costs and burdens of raising capital for small businesses without sacrificing investor protection, and to maximize the amount of offering proceeds available to the issuer for investment in the business. The maximum offering amount that may be raised under this exemption is $1,000,000 in a 12-month period. The offering can be sold to an unlimited number of investors in Montana, though if the investors are unaccredited, they cannot contribute more than $10,000.00.
Issuers eligible for the crowdfunding exemption are required to use the Montana Crowdfunding Form as the disclosure document for the offering.
This form utilizes both “check-the-box” and question and answer formats for simplicity. The form is designed for use by start-up companies whose principals may prepare the form themselves instead of relying on the expertise of attorneys and accountants. The questions presented in the form are designed to elicit specific types of information of special relevance to start-up companies and other small businesses. CSI Securities Division examiners may review and comment on the disclosure provided and may request revisions or additional disclosure before the offering is declared exempt.
One unique aspect of the form is that its questions present issues that a start-up or other small business may need to address to become successful. Thus, in providing responses, a company is compelled to create a business plan describing its anticipated steps to success. If the form is filled out properly, the assumptions and weaknesses in the plan should be evident, and these should be prominently disclosed as risk factors in the offering.
The Montana Crowdfunding Form is a Microsoft Word document that contains macros. When asked whether to enable macros in the document, you must select “Enable” for the form to function properly.
Under Mont. Code Ann. 30-10-105(22)(f), securities may not be transferred. However, certain circumstances allow the transfer pursuant to an exemption, including:
- To the issuer of the securities
- To an accredited investor
- Pursuant to an effective registration statement, or
- In connection with the death or divorce or other similar circumstances.
In addition, federal rule 147 and 147A provides that transfers of securities may be made only to persons residing within Montana for a period of six months prior to the date of the sale by the issuer to the purchaser.
The intrastate crowdfunding exemption permits an issuer to engage in general solicitation or general advertising in offering and selling securities. However, the ability to advertise a crowdfunding offering on a website may be limited by federal law. To be able to raise capital under Montana’s crowdfunding exemption, the company must be able to establish that the offering qualifies for one (1) of two (2) federal exemptions from registration:
- The federal exemption from registration under Section 3(a)(11) of the Securities Act of 1933 and Rule 147 adopted thereunder; or
- The federal exemption from registration under Rule 147A. If an issuer is relying on the federal exemption from registration under Section 3(a)(11) and Rule 147 adopted thereunder, its ability to advertise a crowdfunding offering on a website is limited by federal law.
- See U.S. Securities and Exchange Commission, Securities Act Rules: C&DI Questions 141.03, 141.04, and 141.05.
Intrastate crowdfunding offerings are subject to “bad actor” disqualification provisions, which disqualify an issuer from conducting an offering in reliance on the exemption if the issuer or other relevant persons (such as underwriters, placement agents and the directors, officers and significant shareholders of the issuer) have been convicted of, or are subject to court or administrative sanctions for, securities fraud or other violations of specified laws. For more information, see Mont. Code Ann. § 30-10-105(22)(c)(3,4).
The Montana Crowdfunding Form disclosure document constitutes the notice filing for the offering. It should be submitted to the CSI Securities Division with a cover letter and the $100 filing fee.
This application will be carefully reviewed, and comments specifying any deficiencies will be communicated to you. Before you may commence the offering, you must revise and resubmit your disclosure document as requested until you have met all requirements and the offering has been declared exempt.
Complete this document and file it with CSI Securities Department.
Use this document template for the information you should disclose to potential investors. This does not need to be filed with the CSI Securities Department.