OVERVIEW --- HB 2591 provides an exemption for a certain type of securities transaction from statutory registration requirements.
Statute defines security in part as any note, stock, treasury stock, bond, commodity investment contract, commodity option, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, or investment contract. Arizona Revised Statutes, Title 44, Chapter 12 governs the sale or offer for sale of securities within or from Arizona, requires registration of dealers and salesmen, and prohibits fraudulent activity. The Arizona Corporation Commission (Commission) Securities Division provides oversight of securities, securities dealers and salespersons, and investment advisers and their representatives. Additionally, the Securities Division investigates securities violations involving individuals and companies who are not licensed to sell securities. The Securities Act (Securities Act) of 1933 provides federal oversight in the sale or offer for sale of securities. Enacted in 2012, the Jumpstart Our Business Startups Act (JOBS Act) amended the Securities Act to create a new exemption for offerings of “crowdfunded” securities. Specifically, the JOBS Act provides certain exemptions for issuers when they offer and sell up to $1 million in securities, provided that individual investments do not exceed certain thresholds and the issuer satisfies other conditions in the JOBS Act.
1. Exempts a securities transaction from statutory registration requirements relating to the sale of securities if the following criteria are met:
a. The issuer of the security is a business entity organized under Arizona laws, authorized to do business in the state, and does business
pursuant to the Securities Act.
b. The transaction meets the requirement of the federal exemption for intrastate offerings pursuant to the Securities Act.
c. The aggregate offering price of the securities complies with the following:
i. The sum of all cash and other consideration to be received for all sales of securities does not exceed $1 million in a 12-month period,
if the issuer has not undergone a financial audit of the prior fiscal year,
ii. The sum of all cash and other consideration to be received for all sales of securities does not exceed $2.5 million in a 12-month period,
if the issuer has undergone a financial audit of the prior fiscal year,
iii. An offer or sale to an individual occupying similar status as the issuer, or to a person owning 10% or more of the outstanding shares of securities of the issuer does not count towards the monetary limitations.
d. All sales that are part of the same offering, made in reliance on the exemption, meet all the terms and conditions of the exemption.
Offers and sales that are made more than six months before the start of an offering or are made more than six months after the completion of
an offering may not be considered part of the offering if certain conditions are met.
e. The issuer does not accept more than $10,000 from any single purchaser unless the purchaser is an accredited investor pursuant to the Securities Act.
f. The issuer submits the following information to the Commission, unless waived, at least 10 days prior to the commencement of an offering
i. A notice filing,
ii. A copy of the disclosure document,
iii. A copy of the escrow agreement,
iv. Any other documents or information as required by the Commission.
g. All cash and other consideration paid for securities sold in relating to the exemption are deposited into a single escrow account maintained
by a state authorized financial institution. Any information requested by the Commission to determine compliance with requirements for the exemption is confidential and not subject to disclosure, with exception.
h. Offers made in relation to the exemption state a target offering amount and an offering deadline of not less than 21 days and not more than
1 year from the date the offer is made.
i. The sum of all cash and other consideration received held in escrow is not less than 80% of the target offering amount on expiration of the offering deadline or the early closing of the offering.
j. A purchaser is permitted to cancel the commitment to invest at a defined time if certain conditions are met.
k. At least 5 days before the early closing, the issuer delivers notice of the closing to each purchaser and posts the notice conspicuously on each internet website on which the offer was posted, if an issuer closes an offering before the offering deadline.
l. Before or as a result of the offering, the issuer is not a certain type of company as outline in this act or subject to the reporting requirements of the Securities Exchange Act of 1934.
m. The issuer informs all prospective purchasers of securities that the securities have not been registered under federal or state laws and that the securities are subject to the limitations on resale.
n. The issuer displays a notice regarding making an investment decision on the disclosure document.
o. The issuer requires each purchaser to certify in writing an understanding and acknowledgement statement.
p. The issuer obtains evidence from each prospective purchaser indicting in-state residency and, if applicable, investor accreditation.
q. The issuer provides a disclosure document to each prospective purchaser at the time the offer of securities is made containing information which includes, a description of the company, terms and conditions of the securities and price per unit being offered, offering deadline and target offering amount, either the percentage of ownership represented by the offered securities or the valuation of the company implied by the price of the offered securities, current financial statements certified by the principal executive officer, and any additional information material to the offering.
r. The exemption is not used if an issuer or person affiliated with the issuer or offering is subject to disqualification.
s. The Commission may set aside disqualification if certain conditions are met.
t. The sale is made exclusively through one or more internet websites that are operated by a dealer who is registered pursuant to statute and complies with the requirements for the offering or sale of securities on the website.
u. The issuer makes and keeps all required accounts and other records that the Commission prescribes by rule or order.
v. The issuer provides a quarterly report to the purchasers until no securities issued under the exemption are outstanding.