July 2015 Update: It’s the law. Arizona legislators approved the measure at the beginning of the month.
Arizona crowdfunding may become easier if state legislators push through a new Internet law.
Currently, AZ crowdfunding regulations are strict. Because of state finance regulations, Arizona project creators can’t offer investors a piece of the profit pie on sites like Kickstarter.com and GoFundMe.com. Instead, Grand Canyon State entrepreneurs can only accept pure donations or offer discounts or rewards to entice “investors.”
AZ Legislators Want to Eliminate Crowdfunding Restrictions
But Arizona legislators hope to weaken the crowdfunding restriction by loosening the regulation reigns.
Senate Bill 1450 and its House counterpart HB 2591 would allow small businesses in Arizona to sell securities in exchange for funding. Currently, in Arizona, it’s illegal to do so without first getting the blessing of the Securities and Exchange Commission.
The Catch: Only Arizonans Can Participate in Arizona Crowdfunding
But the bill has parameters. Perhaps most notably, it only applies to Arizona residents. In other words, project creators can only offer securities to other Arizonans. To wit, a Silicon Valley VC wouldn’t be able to “buy” securities, in an Arizona, online crowd-sourced initiative.
Why the border throttle?
Lawmakers are promoting the bill as one that will jump start local investment. The operative word being “local.” In the words of Arizona Sen. David Farnsworth:
“This gives people who would ordinarily not be investing the opportunity to invest in something they believe in; something that’s close to home.”
Despite the restrictions, if the Arizona crowdfunding bill passed, it could be a great tool for Arizona startups previously rejected for bank loans.
Speak with a Crowdfunding Lawyer
Currently, 15 states have crowdfunding laws. Kelly / Warner is an Internet law firm that works with businesses and entrepreneurs in all 50 states, Canada, Europe and Australia. To speak with a lawyer about your Arizona crowdfunding legal questions, contact us.