Illinois General Assembly ushers in crowdfunding revolution
With the governor’s signature, Illinois will become the most competitive state for crowdfunding in the country.
UPDATE: Gov. Bruce Rauner signed House Bill 3429 on July 29.
Illinois businesses are poised to take advantage of investment crowdfunding in the wake of legislation that passed out of the Illinois Senate in unanimous fashion on May 20. House Bill 3429, which also passed unanimously in the Illinois House of Representatives, will now move to Gov. Bruce Rauner’s desk.
With the governor’s signature, Illinois will become home to the most competitive crowdfunding regulations in the nation.
Crowdfunding allows small investors to pool their dollars together to finance a new business or local project, and thus gain a debt or ownership stake in the project. It’s similar to fundraisers on Kickstarter and Indiegogo, except that investment crowdfunding is done as an investment rather than a donation. So the next tech company to come out of 1871, for example, will have a new tool to finance its growth, ushering in a new culture of entrepreneurial finance.
This framework has a rich history of spurring American economic growth. In fact, it’s how Henry Ford financed the start-up of Ford Motor Company. However, investment crowdfunding was severely restricted in the U.S. from the 1930s until the passage of the bipartisan Jumpstart Our Business Startups (JOBS) Act in 2012.
The JOBS Act dictated that investment crowdfunding could be done by creating intrastate exemptions – meaning Illinois businesses could only raise money from Illinois residents – and put the onus on state lawmakers to develop crowdfunding exemptions for their states before constituents could use this type of financing. Pending the governor’s approval, Illinois will become the 19th state to pass a crowdfunding exemption.
The bill will give Illinoisans the highest investment limits of any regulatory framework for crowdfunding in the country. It would also allow an especially broad pool of eligible investors while ensuring flexibility from the Secretary of State’s office to help with customizing the rules in order to avoid stumbling blocks appearing in other states. The rules of the game for crowdfunding in Illinois include:
- Companies with audited financials can raise up to $4 million per year
- Companies with unaudited financials can raise up to $1 million per year
- Accredited investors can invest as much as they want in each offering
- Unaccredited investors can invest up to $5,000 per year in each offering
This innovative form of funding is described by economist John Berlau as “finance of the people, by the people, for the people.” For this reason, as well as crowdfunding’s explosive potential for economic growth in a state with a moribund business climate, investment crowdfunding has been a key element of the Illinois Policy Institute’s legislative agenda for entrepreneurs, which was developed in September 2014.
Pro-entrepreneur legislation like crowdfunding will help turn the state around, and end the trend of small-business owners in Illinois giving the state an F for business friendliness. Crowdfunding legislation and other laws to promote entrepreneurship are important steps toward government embracing the innovative, entrepreneurial culture necessary to move toward a passing grade, and a lot more opportunities in the state of Illinois.