S T A T E O F N E W Y O R K
________________________________________________________________________
7790
2015-2016 Regular Sessions
I N A S S E M B L Y
May 27, 2015
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Introduced by M. of A. SCHIMMINGER, LUPARDO, COOK, BLAKE -- Multi-Spon-
sored by -- M. of A. HIKIND, SOLAGES, THIELE -- read once and
referred to the Committee on Economic Development
AN ACT to amend the general business law, in relation to allowing crowd-
funding with limited restrictions to assist start-ups with accessing
capital
THE PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND ASSEM-
BLY, DO ENACT AS FOLLOWS:
Section 1. The legislature finds that start-up companies are an impor-
tant part of this state's economy. The legislature also finds that
start-ups have unique challenges when accessing capital. Crowdfunding
allows start-ups to raise money through a significant number of inves-
tors. However, crowdfunding practices are burdened by registration
requirements under New York state law. Registration requirements for
issuers of securities can be expensive and inconvenient for small offer-
ings facilitated through crowdfunding. Therefore, to assist start-ups
with accessing capital in an efficient and streamlined way, the legisla-
ture finds that crowdfunding should be permitted with limited
restrictions.
S 2. The general business law is amended by adding a new section 359-
ffff to read as follows:
S 359-FFFF. ACCESSING CAPITAL EXEMPTIONS. 1. ANY TRANSACTION RELATING
TO THE SALE OR OFFERING FOR SALE BY THE ISSUER OF A SECURITY SHALL BE
EXEMPT FROM THE PROVISIONS OF SUBDIVISION EIGHT OF SECTION THREE HUNDRED
FIFTY-NINE-E OF THIS ARTICLE IF SUCH TRANSACTION MEETS THE FOLLOWING
REQUIREMENTS:
A. THE OFFERING IS CONDUCTED IN ACCORDANCE WITH THE REQUIREMENTS OF
PARAGRAPH ELEVEN OF SUBDIVISION (A) OF SECTION THREE OF THE SECURITIES
ACT OF 1933 AND THIS SECTION. SECURITIES ARE OFFERED TO AND SOLD ONLY TO
PERSONS WHO ARE RESIDENTS OF THE STATE OF NEW YORK AT THE TIME OF
PURCHASE. PRIOR TO ANY OFFER OR SALE PURSUANT TO THIS EXEMPTION, THE
EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets
[ ] is old law to be omitted.
LBD09800-01-5
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SELLER SHALL OBTAIN DOCUMENTARY EVIDENCE FROM EACH PROSPECTIVE PURCHASER
THAT PROVIDES THE SELLER WITH A REASONABLE BASIS TO BELIEVE THAT SUCH
INVESTOR IS A RESIDENT OF THE STATE OF NEW YORK. SALES OF SECURITIES
SHALL BE MADE ONLY BE ENTITIES ORGANIZED AND DOING BUSINESS IN THE STATE
OF NEW YORK.
B. THE AGGREGATE PURCHASE PRICE OF ALL SECURITIES SOLD BY THE ISSUER
PURSUANT TO THIS EXEMPTION DURING ANY TWELVE-MONTH PERIOD SHALL NOT
EXCEED ONE MILLION DOLLARS. SECURITIES SOLD BY THE ISSUER PURSUANT TO
OTHER AVAILABLE EXEMPTIONS SHALL NOT COUNT AGAINST THE ONE MILLION
DOLLAR CAP.
C. THE AGGREGATE AMOUNT SOLD TO ANY INVESTOR BY ANY ONE ISSUER DURING
THE TWELVE-MONTH PERIOD PRECEDING THE DATE OF SUCH TRANSACTION MAY NOT
EXCEED: (I) THE GREATER OF TWO THOUSAND DOLLARS OR FIVE PERCENT OF THE
ANNUAL INCOME OR NET WORTH OF SUCH INVESTOR, AS APPLICABLE, IF EITHER
THE ANNUAL INCOME OR THE NET WORTH OF THE INVESTOR IS LESS THAN ONE
HUNDRED THOUSAND DOLLARS; AND (II) TEN PERCENT OF THE ANNUAL INCOME OR
NET WORTH OF SUCH INVESTOR, AS APPLICABLE, NOT TO EXCEED A MAXIMUM
AGGREGATE AMOUNT SOLD OF ONE HUNDRED THOUSAND DOLLARS, IF EITHER THE
ANNUAL INCOME OR NET WORTH OF THE INVESTOR IS ONE HUNDRED THOUSAND
DOLLARS OR MORE.
D. SECURITIES MAY BE SOLD ONLY TO PERSONS WHO SIGN THE FOLLOWING
STATEMENT AT THE TIME OF SALE: "I ACKNOWLEDGE THAT I AM INVESTING IN A
HIGH-RISK, SPECULATIVE BUSINESS VENTURE, THAT I MAY LOSE ALL OF MY
INVESTMENT, AND THAT I CAN AFFORD THE LOSS OF MY INVESTMENT."
E. SALES OF SECURITIES MAY BE OFFERED THROUGH AN INTERNET PORTAL WHICH
REQUIRES AS A CONDITION OF ENTRY TO THE PORTAL EVIDENCE OR CERTIFICATION
OF RESIDENCY WITHIN THE STATE OF NEW YORK. THE DEPARTMENT OF STATE MAY
INSPECT AND REVIEW ANY SUCH WEBSITE, AND AT THE TIME SUCH A WEBSITE
FIRST OFFERS INVESTMENT OPPORTUNITIES TO NEW YORK STATE RESIDENTS, THE
WEBSITE OPERATOR SHALL INFORM THE SECRETARY OF STATE OF THE EXISTENCE OF
THE WEBSITE AND SHALL GIVE THE DEPARTMENT ACCESS TO THE SITE.
F. THE ISSUER MUST REASONABLY BELIEVE THAT ALL PURCHASERS OF SECURI-
TIES ARE PURCHASING FOR INVESTMENT AND NOT FOR SALE IN CONNECTION WITH A
DISTRIBUTION OF THE SECURITY.
G. ATTEMPTED COMPLIANCE WITH THE EXEMPTION PROVIDED BY THIS SECTION
DOES NOT ACT AS AN EXCLUSIVE ELECTION. THE ISSUER MAY CLAIM ANY OTHER
APPLICABLE EXEMPTION.
H. FOR SO LONG AS ANY OF THE SECURITIES ISSUED UNDER THE EXEMPTION ARE
OUTSTANDING, THE ISSUER SHALL PROVIDE A QUARTERLY REPORT TO THE ISSUER'S
SHAREHOLDERS BY MAKING SUCH REPORT PUBLICLY ACCESSIBLE, FREE OF CHARGE,
AT THE ISSUER'S INTERNET WEBSITE ADDRESS WITH A USER NAME AND PASSWORD
WITHIN FORTY-FIVE DAYS OF THE END OF EACH FISCAL QUARTER. THE REPORT
MUST CONTAIN THE FOLLOWING INFORMATION: (I) EXECUTIVE OFFICER AND DIREC-
TOR COMPENSATION, INCLUDING SPECIFICALLY THE CASH COMPENSATION EARNED BY
THE EXECUTIVE OFFICERS AND DIRECTORS SINCE THE PREVIOUS REPORT AND ON AN
ANNUAL BASIS, AND ANY BONUSES OR OTHER COMPENSATION, INCLUDING STOCK
OPTIONS OR OTHER RIGHTS TO RECEIVE EQUITY SECURITIES OF THE ISSUER OR
ANY AFFILIATE OF THE ISSUER, RECEIVED BY THEM; AND (II) A BRIEF ANALYSIS
BY MANAGEMENT OF THE ISSUER OF THE BUSINESS OPERATIONS AND FINANCIAL
CONDITION OF THE ISSUER.
I. SECURITIES ISSUED PURSUANT TO A TRANSACTION DESCRIBED IN THIS
SECTION MAY NOT BE TRANSFERRED BY THE PURCHASER OF SUCH SECURITIES
DURING A ONE-YEAR PERIOD BEGINNING ON THE DATE OF PURCHASE, UNLESS SUCH
SECURITIES ARE TRANSFERRED: (I) TO THE ISSUER OF THE SECURITIES; (II) TO
AN ACCREDITED INVESTOR; (III) AS PART OF A REGISTERED OFFERING; OR (IV)
TO A MEMBER OF THE FAMILY OF THE PURCHASER OR THE EQUIVALENT, OR IN
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CONNECTION WITH DEATH OR DIVORCE OR OTHER SIMILAR CIRCUMSTANCES, IN THE
DISCRETION OF THE DEPARTMENT.
2. THE DEPARTMENT MAY ADOPT RULES TO PROTECT INVESTORS WHO PURCHASE
SECURITIES UNDER THIS SECTION.
S 3. This act shall take effect immediately.