Illinois joins regional trend with law allowing businesses to raise capital via ‘crowdfunding’

Starting on Jan. 1, nearly all Illinois residents became eligible to invest in businesses in the state looking to raise capital. The reason: recently enacted legislation (HB 3429) that provides an exemption for nonaccredited investors to participate in intrastate “equity crowdfunding.”

This alternative investment model has received more and more attention in state capitols in recent years, in part because policymakers and small- business groups grew restless over the wait for final federal rules on equity crowdfunding. Those final Securities and Exchange Commission rules will begin to take effect this spring, four years after passage of federal legislation that paved the way for interstate crowdfunding investments.

The state laws in place in Illinois and seven other Midwestern states, though, can still apply to intrastate activity.
“As a small-business owner, I know one of the most challenging aspects of running a business is having access to an adequate line of credit for the typical business-cash ebbs and flows,” says Illinois Rep. Carol Sente, a sponsor of HB 3429.
With equity crowdfunding, the pool of potential investors for a small business or startup is greatly expanded. That is because crowdfunding investors don’t have to meet typical accreditation requirements (net worth and income, for example) or go through the lengthy, expensive process of becoming accredited. HB 3429 passed with large bipartisan support, as well as with the help of a Small Business Caucus that Sente helped start in the Illinois House (it now counts 23 members).
“Access to capital remains one of the top five issues for small to medium-size businesses [in our state],” Sente says.
Under the Illinois law, a business can receive up to $4 million in intrastate crowdfunding every year. This cap is higher than in most other states — the typical limit is $2 million, and under Iowa’s new law (which took effect around the same time as Illinois’), the maximum is $1 million.
These state laws also restrict how much a nonaccredited investor can give to a single business. Most states set this cap at $5,000 annually per business. But there are exceptions (see table above). In the Midwest, three states allow nonaccredited investors to give up to $10,000 per business. Kansas, which has the oldest equity crowdfunding exemption (adopted in 2011, even before the federal JOBS Act), sets the maximum at $1,000.
Stateline Midwest: February 20162.03 MB