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Did you know that Michigan recently passed new legislation making it much, much easier for state residents of any financial background to invest in Michigan-based businesses?
Michigan, along with 12 other states as of June 2014, adopted new legislation allowing businesses to publicly recruit investors. The new MILE (Michigan Invests Locally Exemption) Act, passed in December 2013, allows unaccredited state residents to invest up to $10,000 in state-based businesses via online and social media platforms—it’s called investment crowdfunding. Crain’s Detroit Business News offers a nice overview of the new law and how it works.
What does this really mean and why is it a huge deal? First, it means entrepreneurs and small businesses can now access capital from the masses. Second, it means Michigan residents will soon have many more investment options, paving the way for people to begin choosing Main Street over Wall Street.
Most people I have spoken with about this over the last few months never knew there were rules governing their investment decisions, or more accurately, rules governing how businesses are allowed to recruit investors. Basically, the federal Securities and Exchange (SEC) laws prohibit businesses that are not registered with the SEC—which is a huge undertaking and just doesn’t make sense for most small businesses—from generally soliciting investors or publicly advertising opportunities for investment in their companies, other than from personal connections, friends and family members.
Now there are always exceptions—or exemptions. Maybe the most well-known exemption is the one allowing solicitation from accredited investors, who are people with high net worth and/or income and who make up only 1 to 5 percent of the population.
As you can imagine, it might be difficult for businesses to access this limited population. These rules are said to safeguard Americans from fraudulent investment scams, while others believe they are aimed at controlling how and where wealth is distributed in the U.S.
Although this Michigan law is not limited to online solicitation, the MILE Act opens the door for businesses to utilize online crowdfunding platforms and their power to create great impact by gathering individuals into collective forces.
Kate Redman, an enthusiast for this new law and an attorney for Olson, Bzdok, & Howard in Traverse City, Michigan, believes this has the opportunity to change the face of financial lending as we know it.
“The takeaway here is this law is exciting not only for securities lawyers but also businesses and communities because investment crowdfunding is as much a tool for community engagement and development as it is for finance,” Redman said. “For businesses, it means that instead of only looking for investment from banks or rich uncles primarily concerned with financial return, they also can look to their neighbors and customers, who are likely to be as interested in the social and community returns as the financial return.
“And for us regular people, instead of sending all of our savings to a 401k invested in Wall Street, we can instead invest some of that money in our neighbors and the kinds of businesses we want to see in our community. We can see returns on our investments not only when we retire, but also right away in our towns and main streets.”
There are additional rules and regulations associated with this new law, and anyone interested in taking advantage of it should seek professional advice to ensure they are in compliance. Northwestern Michigan College, Olson, Bzdok & Howard, and the Michigan Land Use Institute are hosting a workshop—sponsored by Hagerty and FIM Group—on Friday, Sept. 26 from 9 am to 4 pm at the NMC University Center. The event will feature local and state experts and cover the legal and technical requirements necessary for businesses to raise capital through the innovative and groundbreaking MILE Act.
Click here to see the lineup of speakers, learn more about the day, and register for this event. Businesses, community leaders, business support professionals, and anyone interested in learning more about investment crowdfunding are welcome and encouraged to attend.