Bill Text: MI SB0891 | 2015-2016 | 98th Legislature | Introduced

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Bill Title: Trade; securities; Michigan invests locally exemption in uniform securities act; revise. Amends sec. 202a of 2008 PA 551 (MCL 451.2202a).

Spectrum: Partisan Bill (Republican 3-0)

Status: (Introduced - Dead) 2016-04-14 - Referred To Committee On Banking And Financial Institutions [SB0891 Detail]

Download: Michigan-2015-SB0891-Introduced.html

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SENATE BILL No. 891

 

 

April 14, 2016, Introduced by Senators BOOHER, HORN and ZORN and referred to the Committee on Banking and Financial Institutions.

 

 

 

     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 Institute of

 

Certified Public Accountants or the statements on standards for

 

accounting and review services of the American institute of

 

certified public accountants, 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 Institute of

 

Certified Public Accountants or the statements on standards for

 

accounting and review services of the American institute of

 

certified public accountants, Institute of Certified Public

 

Accountants, as applicable.

 

     (iii) Five 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 all of the following are met:

 

     (A) The issuer is a state public university; or is, and

 

submits documentation to the administrator signed by all of the

 

partners that it is, a person that is in partnership with a state

 

public university or coalition of state public universities as part

 

of a tech transfer program.

 

     (B) The issuer files with the administrator, and makes

 

available online to prospective purchasers, a copy of the issuer's

 

business plan.

 

     (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

 

     (a) "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.

 

     (b) "State public university" means a state university

 

described in section 4, 5, or 6 of article VIII of the state

 

constitution of 1963.

 

     (c) "Tech transfer program" means a program operated by a

 

state public university for the purpose of transferring

 

technologies, methods of manufacturing, innovative products or

inventions, or entities from their use within the university

 

program to commercial use.

 

     (11) The exemption described in this section may be referred

 

to as the "Michigan invests locally exemption".

 

     Enacting section 1. This amendatory act takes effect 90 days

 

after the date it is enacted into law.