12 Things to Know About Required Disclosures under Minnesota’s Equity-Based Crowdfunding Act New to Minnesota – Part 3 Examining MNvest legislation.
Of the many ways to modernize securities laws from the 1930’s – the ability to publicly advertise the offering of an ownership interest in a Minnesota business is paramount to the proposed MNvest legislation. Disclosures to prospective purchasers, however, are required in order to publicly advertise the MNvest offering through a portal or portal operator.
Under the new law, the MNvest issuer (described in Part 1 of this article series) shall require the portal operator to make printable or downloadable disclosure documents available to prospective purchasers. The MNvest issuer disclosure documents must contain the following:
1. Type of entity (LLC, C-Corp, Benefit Corp., etc.) and contact information, but also:
– Formation history for previous 5 years.
– Summary of material facts of its business plan and capital structure.
– Intended use of the offering proceeds, including whether amounts will be used to compensate executives, owners, directors, managers or similar roles.
2. Stipulate the date when the offering expires, which must be less than 12 months from when the offering commenced.
3. Copy of the escrow agreement between escrow agent and MNvest issuer, and portal operator, if applicable.
4. Financial statements from its most recent fiscal year, including copies of its balance sheet and income statement.
5. Identify who owns more than 10% equity interest in the company.
6. Identify (including their title and relevant experience) the executive officers, directors, governors, managers, members, and others with similar roles.
7. Terms and Conditions of the securities being offered, which must include:
– Description of investor exit strategies.
– Any outstanding securities of the MNvest issuer.
– Minimum and Maximum amount of securities being offered
– Either the economic ownership percentage of the MNvest issuer (regarding the minimum) and the maximum number of securities being sold (regarding the maximum), or the valuation of the MNvest issuer implied by the price of the offered securities.
– Price per share, unit or interest.
– Any restrictions on transfer of securities being offered.
– Whether any future issuance of securities might dilute the value of the securities being offered.
8. Identify any person retained to assist the MNvest issuer in conducting the offering and sale of securities, and how much consideration that person received (including the portal operator), but MNvest issuer Need NOT Identify:
– Attorneys.
– Accountants.
– Employees whose primary responsibilities involve operating the business rather than assisting the MNvest issuer in raising capital.
9. Description of any pending material litigation, legal proceedings or regulatory action involving the MNvest issuer or any executive officers, directors, governors, managers or other is similarly situated roles.
10. Statement of material risks unique to the MNvest issuer and its business plans.
11. Statement that the securities have not been registered under federal or state securities laws (i.e. not a public company), and subject to limitations on resale.
12. Finally, the following Legend must be displayed conspicuously in the disclosure document [best practice may be to display in ALL CAPS, perhaps bolded, underlined and in a larger font, too]:
“IN MAKING AN INVESTMENT DECISION, PURCHASERS MUST RELY ON THEIR OWN EXAMINATION OF THE ISSUER AND THE TERMS AOF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR DIVISION OR OTHER REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THESE SECURITIES ARE SUBJECT OT RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED BY SUBSECTION (e) OF SEC RULE 147(CODE OF FEDERAL REGULATIONS, TITLE 17, PART 230.147(e)) AS PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. PURCHASERS SHOULD BE AWARE THAT THEY WILL BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.”
Part 4 of this series of articles concerning the MNvest crowd-funding legislation in Minnesota will examine how Issuers and Portal Operators may engage in solicitation and advertising.
Feel free to contact our law office with any questions. Joe Levitt can be reached at joe@davismeansbusiness.com or at (612) 293-9308.