Washington House Passes Crowdfunding Bill
A few weeks back, we provided you with an overview of Substitute House Bill 2023, the new legislation that would bring crowdfunding to Washington state.
Crowdfunding allows companies to raise funds from the public in exchange for equity in the company (as opposed to just company swag or first delivery of a product). The bill—which has now passed the House by a vote of 89-9, but is waiting to be passed through the Senate—includes obstacles that may trip up companies trying to take advantage of the new crowdfunding rules in Washington. Since our last discussion of this topic, the bill was amended, and we’ve highlighted some of the major amendments below.
Highlights from the Amended Bill
The notable changes to the bill include:
- A definition of “portals” that limits what type of entities can be a registered “portal” under the bill. The definition includes “economic development organizations,” which are any local associate development organization—defined in RCW 43.330.010 as “a local economic development nonprofit corporation that is broadly representative of community interests”— or port districts. The economic development organization is required to collect information from the companies that are looking to fundraise, including description of the issuer, a business plan, intended use of the proceeds, identity of the key personnel, description of the outstanding securities, and any prior bad acts, i.e. legal proceedings involving the key personnel.
- The reporting obligations that we detailed in the prior post for companies using crowdfunding would only be required for companies that use funding portals to raise funds. Under the bill, a company can choose to use a funding portal or have the Washington Department of Financial Institutions declare the offering as an exempt offering—a process that has yet to be spelled out by the rulemakers. If the latter is used, the company has less reporting obligations under the amended bill.
As noted above, the bill passed through the House and is now sitting in front of the Washington state senators. The Senate can choose to amend the bill further and send it back to the House for a revote, or vote to pass the bill as is. This morning the Senate made its first reading of the bill and has referred it to the departments of Financial Institutions, Housing & Insurance. We’ll keep you updated on the bill’s progress. Stay tuned!
If you’d like to learn more about crowdfunding or different ways to raise money for your company, please contact us today. If you’d like to discuss the new Washington state crowdfunding law, please comment below.