A proposed law that would allow North Carolina companies to raise up to $2 million from dozens of small investors has cleared the Senate Judiciary I Committee.
Similar measures have been hailed over the past two years as ways to spark economic growth among small businesses but have met with a number of stumbling blocks along the way. The current measure, Senate Bill 481 authored by Sen. Tamara Barringer, R-Wake, got off to a smooth start Tuesday and will next be vetted by the Senate Finance Committee before heading to the floor.
“This is very important to small businesses and start-ups,” Barringer told the committee. “This is a jobs act for North Carolina.”
Since the great recession of the last decade, capital has been hard to come by for small businesses and start-up companies. Banks have tightened their lending rules, and small companies don’t have access to the large stock markets such as the New York Stock Exchange.
Advocates for crowd-funding bills say they could help new technology firms spawned by North Carolina universities get started, but lawmakers on Tuesday talked about more prosaic examples. One example used was a lawn care business that may want to buy new equipment and trucks in order to expand the territory it serves.
The idea of a crowd-funding measure has been backed by Gov. Pat McCrory’s administration. Commerce Secretary John Skvarla called the measure a key economic development priority earlier this year.
Barringer’s bill is designed to give businesses the ability to grow without depending on banks or jumping through complex legal hoops.
Under the measure, a company that has received a financial review but not a full audit would be able to raise up to $1 million. Companies that have been audited would be able to raise up to $2 million.
Companies using this new ability would have to be North Carolina firms and raise money in increments up to $5,000 from North Carolina residents. The firms would have to state how much money they intended to raise with the offering and, if they miss their marks, investors would get their money back at the end of an escrow period.
“Why would we not also want to require an audit of those firms making a $1 million offering?” asked Sen. Floyd McKissick, D-Durham.
Mike Arnold, a legislative liaison with the North Carolina Secretary of State’s Office, said that audits are costly and time-consuming.
“If you’re a small business, to go through the full expense of an audit for a $100,000 offering just doesn’t make sense,” he said.
