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Community Capital Spotlight: Oregon’s Community Public Offering Exemption

In early 2015,  the Oregon Department of Consumer and Business Services used its authority under Oregon Revised Statute Section 59.035(15) to establish the Oregon Intrastate Offering Exemption through the rulemaking process, which is commonly called the Community Public Offering (CPO). The CPO was the culmination of efforts of a team of people led by Amy Pearl of Hatch Innovation that began earlier in 2014. See this timeline for a breakdown of the events that led to the new administrative rules.

Just days after the rules became effective, Hatch Innovation helped launch the first 9 companies to use the new exemption, and also launched HatchOregon.com, a platform where Oregon residents can get more information about current community public offerings. If you are an Oregon resident you can see current offerings here.

The Key Elements of the CPO

To be eligible for this exemption, the issuer must be an existing Oregon business and have fewer than 50 employees. An offering under this exemption can be up to an aggregate of $250,000, but an issuer may not accept more than $2,500 from any individual investor. Offers and sales must be limited to natural persons who are residents of Oregon, and the offering must be conducted in accordance with the Federal Intrastate Exemption. The offering period can last for up to 12 months unless the issuer applies for an extension.  

Business Technical Service Provider Requirement

To be eligible for the exemption, the issuer must also meet with a business technical service provider and have their business plan reviewed before advertising, offering, or selling securities under this exemption. A business technical service provider is defined as a Small Business Development Center, an Economic Development District, or a not-for-profit incubator, accelerator, or business resource provider approved by the Director.

Key Restrictions of the Exemption

This exemption has some restrictions. For example, the exemption is limited to offerings of notes, stocks, and debentures and is unavailable for offerings involving petroleum exploration or production, mining, or any other extractive industries

Advertising and Solicitation

Advertising and solicitation is permitted under this exemption, but with some conditions. Most notable is that an interested person must affirmatively declare that he or she is an Oregon resident before the person can view the advertising materials.

An internet based third-party platform provider, which can either be a business technical service provider or other entity approved by the Director, may be used to post advertising and offering documents. The platform must segregate the information relating to the securities offering separate from what is accessible to the general public, and may not solicit, sell, or effect transactions unless it is a registered broker-dealer. The rules also state that the platform may only charge a nominal flat fee for the upkeep of the website and may not take an interest in the issuer in exchange for use of the platform

Want More Information?
For more information on Oregon’s Community Public Offering, click here. You can also check out HatchOregon and Oregon’s Department of Consumer and Business Services.

Is Delaware the Best Place to Incorporate a Nonprofit?

By Devin McDougall, SELC Volunteer

Most nonprofit corporations are formed under the laws of their “home state,” that is, the state in which the incorporators reside or in which the nonprofit plans to conduct most of its operations. This is quite different from for-profit corporations, as more than 50% of publicly traded companies in the United States are incorporated in Delaware. Many of the advantages that Delaware provides to for-profit corporations, such as a specialized legal system well-versed in business law, are less applicable for nonprofit corporations.

However, incorporating as a nonprofit under Delaware law can offer certain advantages over other states.

To start, it is important to note that unlike most states, Delaware does not have a separate nonprofit corporations statute. Instead, Delaware nonprofits are governed by the applicable provisions of the Delaware General Corporation Law (“DGCL”).

One advantage provided to corporations under the DGCL is flexibility in internal structure, especially for smaller corporations. Unlike some states such as New York, the DGCL requires a corporation to have only one director. A nonprofit corporation in Delaware must have members, but directors can serve as the only members. Unlike California, there is no requirement for a majority disinterested board. Finally, Delaware does not require the naming of corporate officers.

Delaware also generally applies less cumbersome regulation to the formation and operation of nonprofit corporations than some other states. Unlike New York, which requires in certain circumstances the approval of various state agencies prior to the formation of a nonprofit, an individual can form a Delaware nonprofit corporation simply by filing a certificate of incorporation. Delaware also does not require nonprofit corporations formed under Delaware law to register with its Attorney General’s office or file annual separate financial reports to the state (though if the nonprofit operates in Delaware, it may be required to file a copy of its federal Form 990 with the Delaware Attorney General). Finally, unlike some states, Delaware does not require any state government approvals for nonprofit corporate changes such as amendments to the certificate of incorporation, mergers, and dissolutions.

If you choose to incorporate in Delaware instead of your home state, please be aware of the following requirements. You must retain a Delaware registered agent to received service for you in Delaware. Fees for this service can run from $165 – $250 annually. Additionally, you may need to duly qualify to operate as a charity or corporation in whichever states you work in, and you may be subject to some registration or regulation requirements by virtue of your operations there. However, due to the “internal affairs” principle of American corporate law, internal matters such as the governance and structure of the corporation would generally still be governed by Delaware law.

Despite these requirements, Delaware incorporation can be an attractive choice, especially for would-be incorporators from states such as New York, which heavily regulate nonprofit formation and operation. For example, the New York Lawyers for the Public Interest guide to incorporating a nonprofit provides instructions for incorporation under both New York and Delaware law, and notes that “[i]t is not uncommon for a not-for-profit corporation operating in New York to be incorporated in Delaware.”

Further Resources:

Public Advertising to Wealthy Investors: The New SEC Rule 506(c) vs. California’s Qualified Purchaser Exemption

November 4, 2013

By Caroline Lee, SELC Legal Fellow

The materials available at this web site are for informational purposes only and not for the purpose of providing legal advice. You should contact your attorney to obtain advice with respect to any particular issue or problem.

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Photo Credit Colleen Simon for opensource.com

Many are excited for the latest Jumpstart Our Business Startups (JOBS) Act amendments to the Securities Act of 1933. Rule 506(c) took effect on September 23, 2013, opening up an exemption for emerging growth companies to solicit and advertise an investment opportunity to accredited investors in certain circumstances. Historically, accessing capital from wealthy investors required involvement with the tight-knit angel and venture capital networks that came through connections or the sheer luck of a pre-existing relationship.  Now, small businesses can advertise through social media, the newspaper or otherwise, to connect and to offer investment opportunities to these high net-worth individuals.

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Investment Crowdfunding: One Step Closer

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The Sustainable Economies Law Center at the signing of the 2012 JOBS Act

October 24, 2013

By Caroline Lee, SELC Community Enterprises Law Fellow

The Securities and Exchange Commission (SEC) released the long-awaited Crowdfunding proposed regulations on October 23, 2013, over nine months after its deadline. The 585 pages of rules are open for public notice and comment for 90 days, and were supposed to come 270 days after the April 5, 2012 enactment of Title III of the Jumpstart Our Business Startups Act (JOBS Act). Title III mandated the SEC to draft an exemption to the registration requirements of Section 5 of the Securities Act of 1933 for certain crowdfunding transactions. The new Securities Act Section 4(a)(6), commonly referred to as the crowdfunding exemption, allows for the offer and sale of securities without formal registration provided that certain specific requirements are satisfied. The goal of the exemption is to provide additional financing mechanisms for small businesses, to stimulate job growth, and to open up the opportunity for middle- and lower-income individuals to invest and to participate directly in our capital markets. Read more

Delaware’s New Benefit Corporation Legislation

September 5, 2013

By Devin McDougall

Overview

On August 1, 2013, Delaware’s new benefit corporation law came into effect,1 making Delaware the 19th state2 to authorize the formation of benefit corporations. Benefit corporations, as discussed in further detail here,3 are a special type of corporation that requires directors to consider the advancement of certain specified public benefits when making management decisions for the company.

Delaware’s adoption of the benefit corporation model is significant, because Delaware has historically been a leader in American corporate law. Although Delaware is the second smallest state, more than 50%4 of publicly traded companies in the United States are Delaware corporations, in part due to the predictability and flexibility which characterize Delaware corporate law.

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  1. Delaware 147th General Assembly, Senate Bill # 47 w/SA 1 (2013), http://legis.delaware.gov/LIS/LIS147.nsf/vwLegislation/SB+47?Opendocument
  2. Daniel Fisher, “Delaware ‘Public Benefit Corporation’ Lets Directors Serve Three Masters Instead Of One,” Forbes.com (07/16/13), http://www.forbes.com/sites/danielfisher/2013/07/16/delaware-public-benefit-corporation-lets-directors-serve-three-masters-instead-of-one/
  3. Sustainable Economies Law Center, “New Types of For-Profit Entities” (2013), http://communityenterpriselaw.org/new-types-of-for-profit-entities/#Benefit_Corporation
  4. Delaware, “About the Division of Corporations” (2013), http://corp.delaware.gov/aboutagency.shtml