State New Rules on Crowdfunding
The Washington State published new
provides for a simplified way for businesses to provide
information to investors about the securities offering.
Washington State Department of Financial Institutions].
In order to be able to raise capital under Washington’s
crowdfunding exemption, the company must be able to
establish that the offering qualifies for the federal
exemption from registration under Section 3(a)(11) of the
Securities Act of 1933 and
Rule 147 adopted thereunder, which states the following:
- The issuer of the securities is incorporated or otherwise
legally organized under the laws of the state in which the
offers or sales of securities will take place;
- The principal office of the issuer is located within the
- The issuer must derive at least 80% of its gross revenues
from the operation of a business located within the same
- At least 80% of the issuer’s assets are located within the
same state; and
-The issuer uses at least 80% of the funds raised in the
offering for the operation of the business within the same
If qualified for the federal exemption then a company can
apply for the Washington State crowdfunding exemption.
The Washington crowdfunding exemption is available only to a
corporation or centrally managed limited liability company
or limited partnership that is resident and doing business
within Washington at the time of any offer or sale of
The following types of businesses will not be allowed to
utilize the crowdfunding exemption unless written permission
is obtained from the Securities Division based upon a
showing that adequate disclosure can be made to investors
using the Washington Crowdfunding Form:
- Holding companies, companies whose principal purpose is
owning stock in, or supervising the management of, other
Investment companies subject to the Investment Company Act
of 1940, including private equity funds;
- Portfolio companies, such as real estate investment
- Development stage companies that either have no specific
business plan or purpose or have indicated that their
business plan is to engage in merger or acquisition with an
unidentified company or companies or other entity or person;
- Companies with complex capital structures;
- Blind pools;
- Commodity pools;
- Companies engaging in petroleum exploration or production
or mining or other extractive industries;
- Equipment leasing programs; and
- Real estate programs.
The Washington crowdfunding exemption is available only to
Convertible preferred stock may be allowed as long as
the protections found in
WAC 460-99C-030(5) Apply.
To use the Washington crowdfunding exemption, an issuer must
first make a filing with the Securities Division. The issuer
must wait to commence the offering until it has received
notice from the Securities Division that the offering has
been declared exempt.
The maximum that can be raised is $1,000,000.
It must be raised within 12 months.
A minimum target offering amount and deadline to raise the
minimum target offering amount must be set.
The maximum timeframe allowed to raise the minimum
amount is 12 mounts.
All funds raised in the offering must be deposited with an
independent escrow agent until the minimum offering amount
has been raised.
The offering can be made online or offline.
A funding portal cannot be used.
Brokers can be used to assist in the offering but the
company must make a direct offering.
Businesses must include their financial statements as of the
end of the most recent fiscal year.
While the financial statements need not be audited by
an accountant, they must be prepared in accordance with
generally accepted accounting principles in the United
States (“U.S. GAAP”). It is strongly recommended that
businesses obtain a compilation or review from a qualified
accountant to ensure the proper preparation of the financial
For as long as securities issued under the crowdfunding
exemption remain outstanding, the issuer is required to
provide a quarterly report to the issuer's shareholders by
making such report publicly accessible, free of charge, at
the issuer's internet web site address within 45 days of the
end of each fiscal quarter. The report must contain the
- Executive officer and director compensation, including
specifically the cash compensation earned by the executive
officers and directors since the previous report and on an
annual basis, and any bonuses or other compensation,
including stock options or other rights to receive equity
securities of the issuer or any affiliate of the issuer,
received by them;
- The names of the issuer's owners of twenty percent or more
of a class of outstanding securities, directors, officers,
managing members and/or other persons occupying similar
status or performing similar functions on behalf of the
- A brief analysis by management of the issuer of the
business operations and financial condition of the issuer.
The filing requirements include:
- Completed copy of the Washington Crowdfunding Form;
- Copy of the issuer’s articles of incorporation or other
charter documents pursuant to which the issuer is organized
and all amendments thereto;
- Copy of the issuer’s bylaws or operating agreement and all
- Copy of any resolutions by directors or members concerning
the securities to be issued in the offering;
Financial statements for the most recent fiscal year and, if
applicable, those for the interim period, prepared in
accordance with U.S. GAAP;
- Copy of any agreement with a portal;
- Copy of the escrow agreement with an escrow agent located
in Washington concerning the offering proceeds;
- Copy of the subscription agreement for the offering;
- Copies of any planned advertising;
- A check in the amount of $600 for payment of the filing
should be made payable to the “Washington State Treasurer.”
Small Company Offering Registration (“SCOR”) offers an
optional method of registration that utilizes a question and
answer disclosure document and enables corporations and
limited liability companies (LLCs) to raise up to $1 million
during a period of up to 12 months through the sales of
securities to the public.
Investors may invest under one of the two options (whichever
- $2,000 or 5% of the annual income or net worth of the
investor, whichever is greater, if either the annual income
or the net worth of the investor is <$100,000; or
- 10% of the annual income or net worth of the investor, up
to $100,000, if either the annual income or net worth of the
investor is ≥$100,000.
Washington State Department of Financial Institutions
Section 3(a)(11) of the Securities Act of 1933
Rule 147 of the Securities Act of 1933