By: Michael Gallagher, Deputy District Director
North Dakota District Office
Legislation titled the Jumpstarting Our Business Startups Act, also known as the Jobs Act, is currently making its way through Congress. This legislation aims to make it easier for small businesses to access capital by undoing some federal regulations on business startups. This bill includes provisions that are aimed at encouraging job growth by making it easier and less costly for companies to raise capital and go public.
Various provisions in the bill include the establishment of a new category of companies called "emerging growth companies" that have less than $1 billion in annual revenues at the time they register with the SEC. Another section would raise the number of shareholders that triggers when companies and smaller banks must start public financial reporting. Yet another provision would pave the way for a new type of capital-raising strategy known as "crowdfunding" that would let investors take small stakes in private start-ups over the Internet.
Crowdfunding is the term that usually describes the process where people network and pool their money and other resources together, usually via the Internet, to support efforts initiated by other people or organizations. For small businesses, the entrepreneur seeking to use crowdfunding or seed money normally makes use of online communities to solicit pledges of small amounts of money from individuals who are typically not professional financiers.
All of these non-traditional financing options are interesting and innovative, but decision makers are constantly challenged with how to balance protection of investors as well as the protection of those who are seeking the investment.
Most of the current discussion is on the federal level, but each state, including North Dakota, has its own set of regulations that govern this environment. Oversight for this activity falls to the North Dakota Securities Department. They have a very helpful website, www.ndsecurities.com, with a great deal of useful and understandable information concerning how to work in this environment in the state of North Dakota. The North Dakota Securities Department regulates both franchisees and securities offerings.
On occasion there will be an ad in the paper indicating “investors wanted”. Individuals who place these ads may be in violation of state law and may be fined, in addition to other civil or criminal penalties. As is typical fashion in North Dakota, however, the state has developed an understandable and reasonable process to make it easier for small businesses to consider this option for financing their business. Opportunities for Solicitations of Interest – “Test the Waters" and Limited Offeree are two practical approaches you should consider. Those wishing to pursue investments through these options should familiarize themselves with the regulations and seek competent advice from a professional who deals with these issues.
Individuals interested in securing equity capital in North Dakota may wish to visit the North Dakota State Tax Commissioners website and review “Tax incentives”, www.nd.gov/tax/taxincentives. North Dakota offers a Microbusiness Investment and Employment Credit. This is an income tax credit for microbusinesses certified by the Department of Commerce Division of Economic Development and Finance, www.business.nd.gov. A microbusiness is a business with up to five employees located in a community with a population under 2,000 that is actively involved in economic development.
The State of North Dakota provides significant opportunities for small businesses. Coupled with an effective and collaborative effort with SBA and its lending partners, business owners often find opportunities to finance the start-up or growth of their small business. Understanding the regulations and the environment and working with local economic development organizations and resource partners, small business owners will continue to build our communities, strengthen our economy and provide employment to our citizens.
Mike Gallagher has been a Business Development Specialist for the U.S. Small Business Administration since 1984, and the Deputy District Director since 2005. A graduate of the University of North Dakota, Mike is a Certified Public Accountant and a former business owner and educator. He can be reached at email@example.com.