House Passes Micro Investment Bill

November 16, 2017

On Nov. 9, the House passed the Micro Offering Safe Harbor Act by a vote of 232-188. Introduced by Rep. Tom Emmer (R-Minn.), the measure would greatly simplify the process for small businesses making some securities offerings.

Capital is the lifeblood of any small business, and often small-business owners need capital at various stages; some at their startup and others later when they are looking to expand. Despite this ongoing need, small-business lending from banks has decreased over the last decade and many small businesses have few options for obtaining capital. Small businesses accounted for 99.7 percent of all businesses in the United States last year, but only half of them have a survival rate of longer than five years. According to the NSBA’s 2016 Year-End Economic Report, only 69 percent of small businesses surveyed said they are able to get adequate financing.

More specifically, H.R. 2201 brings clarity to the Securities Act of 1933. By defining what qualifies under the “non-public offering” exemption, this legislation will provide certainty to small-business owners and entrepreneurs as they work to startup or grow their businesses. This legislation requires three specific criteria to be met simultaneously in order to trigger a safe harbor exemption for a security offering. These criteria ensure that:

  • Each investor has a substantive pre-existing relationship with an owner;
  • There are no more than 35 purchasers of securities from the issuer that are sold in reliance on the exemption during the 12-month period; and
  • The aggregate amount of all securities sold by the issuers does not exceed $500,000 during the 12-month period preceding.

By creating three safe harbor exemptions for “non-public offerings,” businesses can operate with clarity and a clear conscience knowing that they would be exempted from registering with the Securities and Exchange Commission (SEC). Additionally, the legislation also exempts transactions meeting the specified requirements from state registration requirements, commonly referred to as “blue sky laws.”

Furthermore, Rep. Emmer’s introduced an amendment to enhance the existing anti-fraud provisions in the underlying bill and provide increased protection for Americans from bad actors trying to swindle and defraud investors.

Access to capital continues to be one of the most pressing issues facing the small-business community. All small businesses need an injection of capital at one point or another, unfortunately in the past several years it has become difficult for small businesses to get the funds they need to grow and expand. NSBA supports the Micro Offering Safe Harbor Act as it will help small businesses around the country expand and create new jobs in their communities.

Please click here to view the NSBA letter of support.