MNVest – Everything You Need to Know!

Money is essential to emerging growth companies and cash is the lifeblood to many startups. Capital is needed to hire employees, launch products and services, marketing and overall revenue growth. At some point, every entrepreneur and small business owner realizes the same thing – “we need more money for _________.”

Recently, the Minnesota legislature has approved legislation concerning equity-based crowdfunding. Introduced in January, both the Minnesota Senate[1] and House of Representatives[2] approved the bill in April.* The bill is often referred to as MNvest.

In general, an entity that wishes to raise money through public offerings in Minnesota must register the sale with the Federal and/or State regulators unless a specific exemption applies. Additionally, Minnesota’s “blue sky laws” – which are contained Minnesota Statutes Chapter 80A – also apply to the sale of securities, that is, unless an exemption applies.

The bill, however, provides an exemption from regulation for “crowdfunding transactions,” by amending Minnesota’s blue sky laws and proposes new blue sky laws. This article breaks down some key features of the bill and sets forth to answer the questions: Could my business even seek exemption from registration for MNvest offerings in Minnesota?

In short, yes, so long as your business qualifies as a “MNvest issuer.” To do so, your business must meet the following requirements:

1. Organized under Minnesota law (i.e. 302A Business Org, 322B/322C LLC).[3]
2. The principal place of business is in Minnesota.[4]
3. 80% of the entity’s assets are located in Minnesota.[5]
4. 80% of entity’s gross revenues are derived from operation of a business in Minnesota, measured: (a) during the previous fiscal year, if MNvest offering begins during 1^st 6 months of the fiscal year; or (b) during the 12 months from the last day of the 6^th month of the entity’s current fiscal year, if MNvest offering begins in the 2^nd half of the fiscal year.[6]
5. Must not attempt to limits its liability for fraud or intentional misrepresentation in making the MNvest offering.[7]
6. Must not be engaged in the business of investing, owning, holding, or trading in securities (except holding one class of securities in an entity that is not engaged in investing/owning/holding/trading).[8]
7. Must not already be a Public Company.[9]
8. In addition to 1 -7 above, the offer must be conducted exclusively through a MNvest portal,[10] which is an Internet Website designed to facilitate such crowdfunding transfers.[11]

The next post on this topic will examine what requirements a MNvest offering must satisfy under the proposed bill, with future articles discussing securities “registration” under Minnesota law (SCOR), and other forms of crowdfunding such as donation-crowdfunding (i.e. GoFundMe) and rewards-crowdfunding (i.e. Kickstarter),

——————————————————————————

* DISCLAIMER – These requirements are NOT yet law in Minnesota. Having passed both chambers, these requirements may become law with Governor Dayton’s approval.

[1] See S.F. No. 138.

[2] See H.F. No. 328.

[3] Minn. Stat. §80A.461(b) (proposed).

[4] Minn. Stat. §80A.461(b)(1) (proposed).

[5] Minn. Stat. §80A.461(b)(2) (proposed).

[6] Minn. Stat. §80A.461(b)(3)(i)–(i) (proposed).

[7] Minn. Stat. §80A.461(b)(4) (proposed).

[8] Minn. Stat. §80A.461(b)(5)(i) (proposed).

[9] Minn. Stat. §80A.461(b)(5)(ii) (proposed).

[10] Minn. Stat. §80A.461(c) (proposed).

[11] See Minn. Stat. §80A.461(d) (proposed).