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A New Path to Capital Opens for North Carolina Businesses

By Benji Jones

The NC PACES Act: “Providing Access to Capital for Entrepreneurs and Small Business” is expected to be signed into law very soon. After years in the making, “intrastate” crowdfunding is coming to North Carolina. 

What does this mean? 

A North Carolina business can raise up to $1 million in any 12-month period (or up to $2 million with audited or reviewed financial statements) from investors who are North Carolina residents. There are no wealth or income limitations on who can invest; however, investors who are not “accredited” may only invest $5,000 in a particular venture in any 12-month period.

After filing a notice (as well as substantive disclosures) with the Securities Division of the North Carolina Secretary of State, companies will be permitted to promote the offering publicly. Companies will be required to communicate in writing the business plan, financials, use of funds and risks of the offering. Investors are required to certify in writing at the time of sale that they understand the risks of purchasing unregistered securities and that they may lose their entire investment. Companies that issue securities under NC PACES will be obligated to provide quarterly reports to investors discussing management compensation, operating results and financial condition, etc.

Unlike federal crowdfunding under Title III of the JOBS Act, this exemption does not mandate the use of a professional crowdfunding intermediary, but it does require the use of an escrow to hold funds prior to closing. No filings with the Securities and Exchange Commission (SEC) are required, but the offering must meet the characteristics of an “intrastate” offering, as set forth in federal statutes and rules.

When can we start?

Companies can start gathering materials, preparing disclosures and consulting advisors right away. However, the Securities Division of the North Carolina Secretary of State’s office will need to adopt specific rules to implement the provisions of the Act. The Secretary of State’s office has played a critical role in formulating this exemption and, although the law gives it a 12-month period to act, hopefully it will give implementation of these rules highest priority. 

Please contact Benji Jones if you would like to learn more about the information covered in this Alert and for further guidance if you are considering a crowdfunding offering. Benji has been closely involved in the drafting and passing of this legislation. 

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