March 26, 2014, Introduced by Rep. Jenkins and referred to the Committee on Commerce.
A bill to amend 2008 PA 551, entitled
"Uniform securities act (2002),"
by amending section 202a (MCL 451.2202a), as added by 2013 PA 264.
THE PEOPLE OF THE STATE OF MICHIGAN ENACT:
Sec. 202a. (1) Except as otherwise provided in this act, an
offer or sale of a security by an issuer is exempt from the
requirements of sections 301 to 306 and 504 if the offer or sale
meets all of the following requirements:
(a) The issuer of the security is an entity that is
incorporated or organized under the laws of this state and is
authorized to do business in this state.
(b) The transaction meets the requirements for the federal
exemption for intrastate offerings under section 3(a)(11) of the
securities act of 1933, 15 USC 77c(a)(11), and SEC rule 147, 17 CFR
230.147, including, but not limited to, the requirements for
determining whether an offeree or purchaser is a resident of this
state. All of the following apply concerning these requirements:
(i) Each of the following is prima facie evidence that an
individual is a resident of this state:
(A) A valid operator's license, chauffeur's license, or
official personal identification card issued by this state.
(B) A current Michigan voter registration.
(C) A signed affidavit as described in section 7cc(2) of the
general property tax act, 1893 PA 206, MCL 211.7cc, that indicates
that the purchaser owns and occupies property in this state as his
or her principal residence.
(D) Any other record or documents issued by this state that
establishes that the purchaser's principal residence is in this
state.
(ii) The provisions of SEC rule 147, 17 CFR 230.147, apply in
determining the residency of an offeree or purchaser that is a
corporation, partnership, trust, or other form of business
organization.
(iii) If a purchaser of a security that is exempt under this
section resells that security within 9 months after the closing of
the particular offering in which the purchaser obtained that
security to a person that is not a resident of this state, the
original investment agreement between the issuer and the purchaser
is void. If an agreement to purchase, or the purchase of, a
security is void under this subparagraph, the issuer may recover
damages from the misrepresenting offeree or purchaser. These
damages include, but are not limited to, the issuer's expenses in
resolving the misrepresentation. However, damages described in this
subparagraph shall not exceed the amount of the person's investment
in the security.
(c) The sum of all cash and other consideration to be received
for all sales of the security in reliance on this exemption does
not exceed the following amounts:
(i) One million dollars, less the aggregate amount received for
all sales of securities by the issuer within the 12 months before
the first offer or sale made in reliance on this exemption, if the
issuer has not made available to each prospective purchaser and the
administrator audited financial statements or reviewed financial
statements for the issuer's most recently completed fiscal year,
prepared by a certified public accountant, as defined in section
720 of the occupational code, 1980 PA 299, MCL 339.720, in
accordance with the statements on auditing standards of the
American institute of certified public accountants or the
statements on standards for accounting and review services of the
American institute of certified public accountants, as applicable.
(ii) Two million dollars, less the aggregate amount received
for all sales of securities by the issuer within the 12 months
before the first offer or sale made in reliance on this exemption,
if the issuer has made available to each prospective purchaser and
the administrator audited financial statements or reviewed
financial statements for the issuer's most recently completed
fiscal year, prepared by a certified public accountant, as defined
in section 720 of the occupational code, 1980 PA 299, MCL 339.720,
in accordance with the statements on auditing standards of the
American institute of certified public accountants or the
statements on standards for accounting and review services of the
American institute of certified public accountants, as applicable.
(d) The issuer has not accepted more than $10,000.00 from any
single purchaser unless the purchaser is an accredited investor as
defined by rule 501 of SEC regulation D, 17 CFR 230.501. The issuer
may rely on confirmation that the purchaser is an accredited
investor from a licensed broker-dealer or another third party in
making a determination that the purchaser is an accredited
investor.
(e) At least 10 days before an offer of securities is made in
reliance on this exemption or the use of any publicly available
website in connection with an offering of securities in reliance on
this exemption, the issuer files a notice with the administrator,
in writing or in electronic form as specified by the administrator,
that contains all of the following:
(i) A notice of claim of exemption from registration,
specifying that the issuer intends to conduct an offering in
reliance on this exemption, accompanied by the filing fee specified
in this section.
(ii) A copy of the disclosure statement to be provided to
prospective investors in connection with the offering. The
disclosure statement must contain all of the following:
(A) A description of the issuer, including its type of entity,
the address and telephone number of its principal office, its
formation history, its business plan, and the intended use of the
offering proceeds, including any amounts to be paid, as
compensation or otherwise, to any owner, executive officer,
director, managing member, or other person occupying a similar
status or performing similar functions on behalf of the issuer.
(B) The identity of each person that owns more than 10% of the
ownership interests of any class of securities of the issuer.
(C) The identity of the executive officers, directors, and
managing members of the issuer, and any other individuals who
occupy similar status or perform similar functions in the name of
and on behalf of the issuer, including their titles and their prior
experience.
(D) The terms and conditions of the securities being offered
and of any outstanding securities of the issuer, the minimum and
maximum amount of securities being offered, if any, and either the
percentage ownership of the issuer represented by the offered
securities or the valuation of the issuer implied by the price of
the offered securities.
(E) The identity of any person that the issuer has or intends
to retain to assist the issuer in conducting the offering and sale
of the securities, including the owner of any websites, if known,
but excluding any person acting solely as an accountant or attorney
and any employees whose primary job responsibilities involve the
operating business of the issuer rather than assisting the issuer
in raising capital, and for each person identified in response to
this sub-subparagraph, a description of the consideration being
paid to that person for that assistance.
(F) A description of any litigation or legal proceedings
involving the issuer or its management.
(G) The name and address of any website that the issuer
intends to use in connection with the offering, including its
uniform resource locator or URL. If the issuer has not engaged a
website described in this sub-subparagraph at the time the issuer
files the disclosure statement described in this subparagraph with
the administrator under this subdivision but subsequently does
engage a website for use in connection with the offering, the
issuer shall provide the information described in this sub-
subparagraph to the administrator by filing a supplemental notice.
(iii) An escrow agreement, with a bank or other depository
institution
located in this state, in which the purchaser funds
will be deposited, that provides that all offering proceeds will be
released to the issuer only when the aggregate capital raised from
all purchasers is equal to or greater than the minimum target
offering amount specified in the disclosure statement as necessary
to implement the business plan and that all purchasers will receive
a return of their subscription funds if that target offering amount
is not raised by the time stated in the disclosure statement. The
bank or other depository institution may contract with the issuer
to collect reasonable fees for its escrow services regardless of
whether the target offering amount is reached.
(f) The issuer is not, either before or as a result of the
offering, an investment company, as defined in section 3 of the
investment company act of 1940, 15 USC 80a-3, or an entity that
would be an investment company but for the exclusions provided in
subsection (c) of that section, or subject to the reporting
requirements of section 13 or 15(d) of the securities exchange act
of 1934, 15 USC 78m and 78o(d).
(g) The issuer informs each prospective purchaser that the
securities are not registered under federal or state securities
laws and that the securities are subject to limitations on transfer
or resale and displays the following legend conspicuously on the
cover page of the disclosure statement:
"IN MAKING AN INVESTMENT DECISION, PURCHASERS MUST RELY ON
THEIR OWN EXAMINATION OF THE ISSUER AND THE TERMS OF THE OFFERING,
INCLUDING THE MERITS AND RISKS INVOLVED. THESE SECURITIES HAVE NOT
BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR
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 TO RESTRICTIONS ON TRANSFERABILITY AND
RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED BY
SUBSECTION (E) OF SEC RULE 147, 17 CFR 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.".
(h) The issuer requires each purchaser to certify in writing,
and to include as part of that certification his or her signature,
and his or her initials next to each paragraph of the
certification, as follows: "I understand and acknowledge that:
I am investing in a high-risk, speculative business venture. I
may lose all of my investment, and I can afford the loss of my
investment.
This offering has not been reviewed or approved by any state
or federal securities commission or other regulatory authority and
that no regulatory authority has confirmed the accuracy or
determined the adequacy of any disclosure made to me relating to
this offering.
The securities I am acquiring in this offering are illiquid,
that the securities are subject to possible dilution, that there is
no ready market for the sale of those securities, that it may be
difficult or impossible for me to sell or otherwise dispose of this
investment, and that, accordingly, I may be required to hold this
investment indefinitely.
I may be subject to tax on my share of the taxable income and
losses of the issuer, whether or not I have sold or otherwise
disposed of my investment or received any dividends or other
distributions from the issuer.
By entering into this transaction with the issuer, I am
affirmatively representing myself as being a Michigan resident at
the time that this contract is formed, and if this representation
is subsequently shown to be false, the contract is void.
If I resell any of the securities I am acquiring in this
offering to a person that is not a Michigan resident, within 9
months after the closing of the offering, my contract with the
issuer for the purchase of these securities is void.".
(i) If the offer and sale of securities under this section is
made through an internet website, all of the following requirements
are met:
(i) Before any offer of an investment opportunity to residents
of this state through the use of a website, the issuer provides to
the website and to the administrator evidence that the issuer is
organized under the laws of this state and that it is authorized to
do business in this state.
(ii) The issuer obtains from each purchaser of a security under
this section evidence that the purchaser is a resident of this
state and, if applicable, an accredited investor.
(iii) The website operator files a written notice with the
administrator that includes the website operator's name, business
address, and contact information and states that it is authorized
to do business in this state and is being utilized to offer and
sell securities under this exemption. Beginning 12 months after the
date of the written notice, a website operator that has filed a
written notice under this subparagraph shall annually notify the
administrator in writing of any changes in the information provided
to the administrator under this subparagraph.
(iv) The issuer and the website keep and maintain records of
the offers and sales of securities made through the website and
provide ready access to the records to the administrator on
request. The administrator may access, inspect, and review any
website described in this subdivision and its records.
(j) All payments for the purchase of securities are directed
to and held by the bank or depository institution subject to the
provisions of subdivision (e)(iii).
(k) Offers or sales of a security are not made through an
internet website unless the website has filed the written notice
required under subdivision (i)(iii) with the administrator.
(l) The issuer does not pay, directly or indirectly, any
commission or remuneration to an executive officer, director,
managing member, or other individual who has a similar status or
performs similar functions in the name of and on behalf of the
issuer for offering or selling the securities unless he or she is
registered as a broker-dealer, investment adviser, or investment
adviser representative under article 4. An executive officer,
director, managing member, or other individual who has a similar
status or performs similar functions in the name of and on behalf
of the issuer is exempt from the registration requirements under
article 4 if he or she does not receive, directly or indirectly,
any commission or remuneration for offering or selling securities
of the issuer that are exempt from registration under this section.
(m) The issuer provides a copy of the disclosure statement
provided to the administrator under subdivision (e)(ii) to each
prospective purchaser at the time the offer of securities is made
to the prospective purchaser. In addition to the information
described in subdivision (e)(ii), the disclosure statement provided
to the administrator and to prospective purchasers shall include
additional information material to the offering, including, where
appropriate, a discussion of significant factors that make the
offering speculative or risky. This discussion must be concise and
organized logically and should not present risks that could apply
to any issuer or any offering.
(n) The term of the offering does not exceed 12 months after
the date of the first offer.
(2) Every fifth year, the administrator shall cumulatively
adjust each of the following dollar amounts to reflect the change
in the consumer price index for all urban consumers published by
the federal bureau of labor statistics:
(a) The dollar limitations provided in subsection (1)(c),
rounding each dollar limitation to the nearest $50,000.00.
(b) The dollar limitation provided in subsection (1)(d) and
section 201(1)(y)(iv), rounding that dollar limitation to the
nearest $100.00.
(3) If the offer and sale of a security of an issuer is exempt
under this section, the issuer shall provide a quarterly report to
the issuer's purchasers until none of the securities issued under
this section are outstanding. All of the following apply to the
quarterly report described in this subsection:
(a) The issuer shall provide the report free of charge to the
purchasers.
(b) An issuer may satisfy the report requirement under this
subsection by making the information available on an internet
website if the information is made available within 45 days after
the end of each fiscal quarter and remains available until the next
quarterly report is issued.
(c) The issuer shall file each report with the administrator
and must provide a written copy of the report to any purchaser on
request.
(d) The report must include all of the following:
(i) The compensation received by each director and executive
officer of the issuer, including cash compensation earned since the
previous report and on an annual basis and any bonuses, stock
options, other rights to receive securities of the issuer or any
affiliate of the issuer, or other compensation received.
(ii) An analysis by management of the issuer of the business
operations and financial condition of the issuer.
(4) The exemption provided in this section shall not be used
in conjunction with any other exemption under this article, except
offers and sales to controlling persons shall not count toward the
limitation in subsection (1)(c).
(5) The exemption described in this section does not apply if
an issuer or person that is affiliated with the issuer or offering
is subject to any disqualification established by the administrator
by rule or contained in rule 262 as promulgated under the
securities act of 1933, 17 CFR 230.262. However, this subsection
does not apply if both of the following are met:
(a) On a showing of good cause and without prejudice to any
other action by the administrator, the administrator determines
that it is not necessary under the circumstances that an exemption
be denied.
(b) The issuer establishes that it made factual inquiry into
whether any disqualification existed under this subsection but did
not know, and in the exercise of reasonable care could not have
known, that a disqualification existed under this subsection. The
nature and scope of the requisite inquiry will vary based on the
circumstances of the issuer and the other offering participants.
(6) The administrator may adopt rules to implement the
provisions of this section and to protect purchasers that purchase
securities that are exempt from registration under this section.
(7) The administrator shall charge a nonrefundable filing fee
of $100.00 for filing an exemption notice required under subsection
(1). The fees paid to the administrator under this subsection shall
be used to pay the costs incurred in administering and enforcing
this act.
(8) A website through which an offer or sale of securities
under this section is made is not subject to the broker-dealer,
investment adviser, or investment adviser representative
registration requirements under article 4 if the website meets all
of the following conditions:
(a) It does not offer investment advice or recommendations.
(b) It does not solicit purchases, sales, or offers to buy the
securities offered or displayed on the website.
(c) It does not compensate employees, agents, or other persons
for the solicitation or based on the sale of securities displayed
or referenced on the website.
(d) It does not hold, manage, possess, or otherwise handle
purchaser funds or securities.
(e) It does not engage in any other activities that the
administrator by rule determines are inappropriate for an exemption
from the registration requirements under article 4.
(9) Except for section 504, article 5 applies to a violation
of this section, including a violation concerning website
operation.
(10) As used in this section, "controlling person" means an
officer, director, partner, or trustee, or another individual who
has similar status or performs similar functions, of or for the
issuer or to a person that owns 10% or more of the outstanding
shares of any class or classes of securities of the issuer.
(11) The exemption described in this section may be referred
to as the "Michigan invests locally exemption".