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Minnesota Legislature

Office of the Revisor of Statutes

HF 328

as introduced - 89th Legislature (2015 - 2016) Posted on 01/26/2015 01:45pm

KEY: stricken = removed, old language.
underscored = added, new language.
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A bill for an act
relating to securities regulation; providing an exemption from regulation for
crowdfunding transactions; proposing coding for new law in Minnesota Statutes,
chapter 80A.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:

Section 1.

new text begin [80A.461] MNVEST REGISTRATION EXEMPTION.
new text end

new text begin Subdivision 1. new text end

new text begin Definitions. new text end

new text begin (a) For purposes of this section, the terms defined in
paragraphs (b) through (e) have the meanings given them.
new text end

new text begin (b) "MNvest issuer" means an entity organized under the laws of Minnesota, other
than a general partnership, that satisfies the requirements of Code of Federal Regulations,
title 17, part 230.147, and the following requirements:
new text end

new text begin (1) the principal office of the entity is located in Minnesota;
new text end

new text begin (2) as of the last day of the most recent semiannual fiscal period of the entity, at least
80 percent, or other threshold permitted by Code of Federal Regulations, title 17, part
230.147, of the entity's assets were located in Minnesota;
new text end

new text begin (3) except in the case of an entity whose gross revenue during the most recent period
of 12 full months did not exceed $5,000, the entity derived at least 80 percent, or other
threshold permitted by Code of Federal Regulations, title 17, part 230.147, of the entity's
gross revenues from the operation of a business in Minnesota during (i) the previous fiscal
year, if the MNvest offering begins during the first six months of the entity's fiscal year; or
(ii) during the 12 months ending on the last day of the sixth month of the entity's current
fiscal year, if the MNvest offering begins following the last day;
new text end

new text begin (4) the entity does not attempt to limit its liability, or the liability of any other
person, for fraud or intentional misrepresentation in connection with the offering of its
securities in a MNvest offering; and
new text end

new text begin (5) the entity is not:
new text end

new text begin (i) engaged in the business of investing, reinvesting, owning, holding, or trading in
securities, except that the entity may hold securities of one class in an entity that is not
itself engaged in the business of investing, reinvesting, owning, holding, or trading in
securities; or
new text end

new text begin (ii) subject to the reporting requirements of the Securities and Exchange Act of 1934,
section 13 or section 15(d), United States Code, title 15, section 78m and section 78o(d).
new text end

new text begin (c) "MNvest offering" means an offer, or an offer and sale, of securities by a MNvest
issuer that: (1) is conducted exclusively through a MNvest portal and (2) satisfies the
requirements of this section and other requirements the administrator imposes by rule.
new text end

new text begin (d) "MNvest portal" means an Internet Web site that is operated by a portal operator
for the offer or sale of MNvest offerings under this section or registered securities under
section 80A.50, paragraph (b), and satisfies the requirements of subdivision 6.
new text end

new text begin (e) "Portal operator" means an entity, including an issuer, that:
new text end

new text begin (1) is authorized to do business in Minnesota;
new text end

new text begin (2) is a broker-dealer registered under this chapter or otherwise registers with the
administrator as a portal operator in accordance with subdivision 7, paragraph (a), and is
therefore excluded from broker-dealer registration; and
new text end

new text begin (3) satisfies such other conditions as the administrator may determine.
new text end

new text begin Subd. 2. new text end

new text begin Generally. new text end

new text begin The offer, sale, and issuance of securities in a MNvest offering
is exempt from the requirements of sections 80A.49 to 80A.54, except 80A.50, paragraph
(a), clause (3), and 80A.71, if the issuer meets the qualifications under this section.
new text end

new text begin Subd. 3. new text end

new text begin MNvest offering. new text end

new text begin (a) A MNvest offering must satisfy the following
requirements:
new text end

new text begin (1) the issuer must be a MNvest issuer on the date that its securities are first offered
for sale in the offering and continuously through the closing of the offering;
new text end

new text begin (2) the offering must meet the requirements of the federal exemption for intrastate
offerings in section 3(a)(11) of the Securities Act of 1933, United States Code, title 15,
section 77c (a)(11), and Rule 147 adopted under the Securities Act of 1933, Code of
Federal Regulations, title 17, part 230.147;
new text end

new text begin (3) the sale of securities must be conducted exclusively through a MNvest portal;
new text end

new text begin (4) the MNvest issuer shall require the portal operator to provide or make available
to prospective purchasers through the MNvest portal a copy of the MNvest issuer's balance
sheet and income statement for the MNvest issuer's most recent fiscal year, if the issuer
was in existence. For offerings beginning more than 90 days after the issuer's most recent
fiscal year end, or if the MNvest issuer was not in existence the previous calendar year, the
MNvest issuer must provide or make available a balance sheet as of a date not more than
90 days before the commencement of the MNvest offering for the MNvest issuer's most
recently completed fiscal year, or such shorter portion the MNvest issuer was in existence
during that period, and the year-to-date period, or inception-to-date period, if shorter,
corresponding with the more recent balance sheet required by this clause;
new text end

new text begin (5) in any 12-month period, the MNvest issuer shall not raise more than the
aggregate amounts set forth in items (i) and (ii), either in cash or other consideration, in
connection with one or more MNvest offerings:
new text end

new text begin (i) $5,000,000 if the financial statements described in clause (4) have been (1)
audited by a public accountant who is independent of the MNvest issuer using auditing
standards issued by either the American Institute of Certified Public Accountants or
the Public Company Oversight Board, or (2) reviewed by a public accountant who is
independent of the MNvest issuer using the Statements on Standards for Accounting
and Review Services issued by the Accounting and Review Services Committee of the
American Institute of Certified Public Accountants; or
new text end

new text begin (ii) $2,000,000 if the financial statements described in clause (4) have not been
audited or reviewed as described in item (i);
new text end

new text begin (6) the MNvest issuer must use at least 80 percent of the net proceeds of the offering
in connection with the operation of its business within Minnesota;
new text end

new text begin (7) no single purchaser may purchase more than $10,000 in securities of the MNvest
issuer under this exemption in connection with a single MNvest offering unless the
purchaser is an accredited investor;
new text end

new text begin (8) all payments for the purchase of securities must be held in escrow until the
aggregate capital deposited into escrow from all purchasers is equal to or greater than the
stated minimum offering amount. Purchasers will receive a return of all their subscription
funds if the minimum offering amount is not raised by the stipulated expiration date
required in subdivision 4, clause (2). The escrow agent must be a bank, regulated trust
company, savings bank, savings association, or credit union authorized to do business
in Minnesota. The escrow agent is only responsible to act at the direction of the party
establishing the escrow account and does not have a duty or liability, contractual or
otherwise, to an investor or other person except as set forth in the applicable escrow
agreement or other contract;
new text end

new text begin (9) the MNvest issuer shall require the portal operator to make available to the
prospective purchaser through the MNvest portal a disclosure document that meets the
requirements set forth in subdivision 4;
new text end

new text begin (10) before selling securities to a prospective purchaser on a MNvest portal, the
MNvest issuer shall require the portal operator to obtain from the prospective purchaser
the certification required under subdivision 5;
new text end

new text begin (11) not less than ten days before the beginning of an offering of securities in reliance
on the exemption under this section, the MNvest issuer shall provide the following to
the administrator:
new text end

new text begin (i) a notice of claim of exemption from registration, specifying that the MNvest
issuer will be conducting an offering in reliance on the exemption under this section;
new text end

new text begin (ii) a copy of the disclosure document to be provided to prospective purchasers in
connection with the offering, as described in subdivision 4; and
new text end

new text begin (iii) a filing fee of $300; and
new text end

new text begin (12) the MNvest issuer and the portal operator may engage in general solicitation
and advertising of the MNvest offering.
new text end

new text begin
Beginning in 2018, the dollar limitations provided in this section must be
adjusted periodically by the administrator pursuant to section 47.59, subdivision 3. The
administrator shall round each dollar amount adjustment to the nearest $10,000.
new text end

new text begin Subd. 4. new text end

new text begin Required disclosures to prospective MNvest offering purchasers.
new text end

new text begin The MNvest issuer shall require the portal operator to make available to the prospective
purchaser through the MNvest portal a printable or downloadable disclosure document
containing the following:
new text end

new text begin (1) the MNvest issuer's type of entity, the address and telephone number of its
principal office, its formation history for the previous five years, a summary of the material
facts of its business plan and its capital structure, and its intended use of the offering
proceeds, including any amounts to be paid from the proceeds of the MNvest offering, as
compensation or otherwise, to an owner, executive officer, director, governor, manager,
member, or other person occupying a similar status or performing similar functions on
behalf of the MNvest issuer;
new text end

new text begin (2) the MNvest offering must stipulate the date on which the offering will expire,
which must not be longer than 12 months from the date the MNvest offering commenced;
new text end

new text begin (3) a copy of the escrow agreement between the escrow agent, the MNvest issuer,
and, if applicable, the portal operator, as described in subdivision 3, clause (8);
new text end

new text begin (4) the financial statements required under subdivision 3, clause (4);
new text end

new text begin (5) the identity of all persons owning more than ten percent of any class of equity
interests in the company;
new text end

new text begin (6) the identity of the executive officers, directors, governors, managers, members,
and other persons occupying a similar status or performing similar functions in the name of
and on the behalf of the MNvest issuer, including their titles and their relevant experience;
new text end

new text begin (7) the terms and conditions of the securities being offered and of any outstanding
securities of the MNvest issuer; the minimum and maximum amount of securities being
offered; either the percentage economic ownership of the MNvest issuer represented by
the offered securities, assuming the minimum and, if applicable, maximum number of
securities being offered is sold, or the valuation of the MNvest issuer implied by the price
of the offered securities; the price per share, unit, or interest of the securities being offered;
any restrictions on transfer of the securities being offered; and a disclosure that any future
issuance of securities might dilute the value of securities being offered;
new text end

new text begin (8) the identity of and consideration payable to a person who has been or will be
retained by the MNvest issuer to assist the MNvest issuer in conducting the offering and
sale of the securities, including a portal operator, but excluding (i) persons acting primarily
as accountants or attorneys, and (ii) employees whose primary job responsibilities involve
operating the business of the MNvest issuer rather than assisting the MNvest issuer in
raising capital;
new text end

new text begin (9) a description of any pending material litigation, legal proceedings, or regulatory
action involving the MNvest issuer or any executive officers, directors, governors,
managers, members, and other persons occupying a similar status or performing similar
functions in the name of and on behalf of the MNvest issuer;
new text end

new text begin (10) a statement of the material risks unique to the MNvest issuer and its business
plans;
new text end

new text begin (11) a statement that the securities have not been registered under federal or state
securities law and that the securities are subject to limitations on resale; and
new text end

new text begin (12) the following legend must be displayed conspicuously in the disclosure
document:
new text end

new text begin "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 DIVISION OR OTHER 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 (CODE OF FEDERAL REGULATIONS, TITLE 17, PART
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."
new text end

new text begin Subd. 5. new text end

new text begin Required certification from MNvest offering purchasers. new text end

new text begin Before
selling securities to a prospective purchaser through a MNvest portal, the MNvest issuer
shall require the portal operator to obtain from the prospective purchaser through the
applicable MNvest portal a written or electronic certification that includes, at a minimum,
the following statements:
new text end

new text begin "I UNDERSTAND AND ACKNOWLEDGE THAT:
new text end

new text begin If I make an investment in an offering through this MNvest portal, it is very likely
that I am investing in a high-risk, speculative business venture that could result in the
complete loss of my investment, and I need to be able to afford such a loss.
new text end

new text begin This offering has not been reviewed or approved by any state or federal securities
commission or division or other regulatory authority and that no such person or authority
has confirmed the accuracy or determined the adequacy of any disclosure made to me
relating to this offering.
new text end

new text begin If I make an investment in an offering through this MNvest portal, it is very likely
that the investment will be difficult to transfer or sell and, accordingly, I may be required
to hold the investment indefinitely.
new text end

new text begin By entering into this transaction with the company, I am affirmatively representing
myself as being a Minnesota resident at the time that this contract is formed, and if this
representation is subsequently shown to be false, the contract is void."
new text end

new text begin Subd. 6. new text end

new text begin MNvest portal. new text end

new text begin A MNvest portal must satisfy the requirements of clauses
(1) through (4):
new text end

new text begin (1) the Web site does not contain the word "MNvest" in its URL address;
new text end

new text begin (2) the Web site implements reasonable steps to limit Web site access to the offer or
sale of securities to only Minnesota residents when conducting MNvest offerings; and
new text end

new text begin (3) MNvest offerings may not be viewed on the MNvest portal by a prospective
purchaser until:
new text end

new text begin (i) the portal operator verifies, through its exercise of reasonable steps, such as using
a third-party verification service or as otherwise approved by the administrator, that the
prospective purchaser is a Minnesota resident; and
new text end

new text begin (ii) the prospective purchaser makes an affirmative acknowledgment, electronically
through the MNvest portal, that:
new text end

new text begin (A) I am a Minnesota resident;
new text end

new text begin (B) the securities and investment opportunities listed on this Web site involve
high-risk, speculative business ventures. If I choose to invest in any securities or
investment opportunity listed on this Web site, I may lose all of my investment, and
I can afford such a loss;
new text end

new text begin (C) the securities and investment opportunities listed on this Web site have not
been reviewed or approved by any state or federal securities commission or division or
other regulatory authority, and no such person or authority, including this Web site, has
confirmed the accuracy or determined the adequacy of any disclosure made to prospective
investors relating to any offering; and
new text end

new text begin (D) if I choose to invest in any securities or investment opportunity listed on this
Web site, I understand that the securities I will acquire may be difficult to transfer or sell,
that there is no ready market for the sale of such securities, that it may be difficult or
impossible for me to sell or otherwise dispose of this investment at any price, and that,
accordingly, I may be required to hold this investment indefinitely; and
new text end

new text begin (4) the Web site complies with all other rules adopted by the administrator.
new text end

new text begin Subd. 7. new text end

new text begin Portal operator. new text end

new text begin (a) An entity, other than a registered broker-dealer,
wishing to become a portal operator shall file with the administrator:
new text end

new text begin (1) form ....... [to be approved by the administrator], including all applicable
schedules and supplemental information;
new text end

new text begin (2) a copy of the articles of incorporation or other documents that indicate the
entity's form of organization; and
new text end

new text begin (3) a filing fee of $200; provided, however, that no fee is due if the issuer will be
the portal operator.
new text end

new text begin (b) A portal operator's registration expires 12 months from the date the administrator
has approved the entity as a portal operator, and subsequent registration for the succeeding
12-month period shall be issued upon written application and upon payment of a renewal
fee of $200, without filing of further statements or furnishing any further information,
unless specifically requested by the administrator. A MNvest issuer functioning as a portal
operator is not subject to the renewal fees of this paragraph. This section is not applicable
to a registered broker-dealer functioning as a portal operator.
new text end

new text begin (c) A portal operator that is not a broker-dealer registered under this chapter shall not:
new text end

new text begin (1) offer investment advice or recommendations, provided that a portal operator
shall not be deemed to be offering investment advice or recommendations merely because
it (i) selects, or may perform due diligence with respect to, issuers or offerings to be listed,
or (ii) provides general investor educational materials;
new text end

new text begin (2) provide transaction-based compensation for securities sold under this chapter to
employees, agents, or other persons unless the employees, agents, or other persons are
registered with the administrator and permitted to receive such compensation;
new text end

new text begin (3) charge a fee to the issuer for an offering of securities on a MNvest portal unless
the fee is (i) a fixed amount for each offering, (ii) a variable amount based on the length of
time that the securities are offered on the MNvest portal, or (iii) a combination of such
fixed and variable amounts; or
new text end

new text begin (4) hold, manage, possess, or otherwise handle purchaser funds or securities. This
restriction does not apply if the issuer is the portal operator.
new text end

new text begin (d) A portal operator shall provide the administrator with the same access to every
part of its MNvest portal that is accessible to purchasers or prospective purchasers.
new text end

new text begin (e) A portal operator shall comply with the record-keeping requirements of this
paragraph, provided that the failure to maintain records in compliance with this paragraph
shall not affect the MNvest issuer's exemption from registration afforded by this section:
new text end

new text begin (1) a portal operator shall maintain and preserve, for a period of five years from either
the date of the closing or termination of the securities offering, the following records:
new text end

new text begin (i) the name of each issuer whose securities have been listed on its MNvest portal;
new text end

new text begin (ii) copies of all offering materials that have been displayed on its MNvest portal;
new text end

new text begin (iii) the names and other personal information of each purchaser who has registered
at its MNvest portal;
new text end

new text begin (iv) any agreements and contracts between the portal operator and the issuer; and
new text end

new text begin (v) any information used to establish that a MNvest issuer, prospective MNvest
purchaser, or MNvest purchaser is a Minnesota resident;
new text end

new text begin (2) a portal operator shall, upon written request of the administrator, furnish to the
administrator any records required to be maintained and preserved under this subdivision;
new text end

new text begin (3) the records required to be kept and preserved under this subdivision must be
maintained in a manner, including by any electronic storage media, that will permit the
immediate location of any particular document so long as such records are available for
immediate and complete access by representatives of the administrator. Any electronic
storage system must preserve the records exclusively in a nonrewriteable, nonerasable
format; verify automatically the quality and accuracy of the storage media recording
process; serialize the original and, if applicable, duplicate units storage media, and
time-date for the required period of retention the information placed on such electronic
storage media; and be able to download indexes and records preserved on electronic
storage media to an acceptable medium. In the event that a records retention system
commingles records required to be kept under this subdivision with records not required to
be kept, representatives of the administrator may review all commingled records; and
new text end

new text begin (4) a portal operator shall maintain such other records as the administrator shall
determine by rule.
new text end

new text begin (f) The maximum liability of a portal operator to an issuer, purchaser, or prospective
purchaser shall not exceed the sum of all fees charged to the issuer in paragraph (c),
clause (4), unless it has failed to comply with the requirements of this section applicable
to a portal operator, or has otherwise committed an act or omission constituting gross
negligence or intentional misconduct.
new text end

new text begin Subd. 8. new text end

new text begin Insignificant deviations. new text end

new text begin A failure to comply with a term, condition,
or requirement of this section will not result in the loss of the exemption set forth in
subdivision 1 for an offer or sale to a particular individual or entity, if the MNvest issuer
relying on the exemption shows:
new text end

new text begin (1) the failure to comply was insignificant with respect to the offering as a whole;
new text end

new text begin (2) the issuer made a good faith and reasonable attempt to comply with all applicable
terms, conditions, and requirements in this section; and
new text end

new text begin (3) the issuer did not know of the failure where the failure to comply with a term,
condition, or requirement of this section was the result of the failure of the MNvest portal
to comply with the requirements of this section.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective the day following final enactment.
new text end