The Delaware General Assembly has approved legislation to give Delaware small businesses access to crowdfunding.
The House voted unanimously to pass House Bill 327, sending to the Governor’s desk a bill that would enable the use of online crowdfunding platforms. The idea was advocated by Gov. Jack Markell in his State of the State address.
Once it is signed into law, more Delaware residents will have the ability to become investors in Delaware start-ups and small businesses through crowdfunding that uses online methods to raise capital.
HB 327, sponsored by Representative Bryon Short (D-Highland Woods) and Senator Brian Bushweller (D-Dover), had previously won unanimous support of the House last month and then in the Senate earlier this week with a minor amendment. The amended version passed the House on Thursday.
“Reports of record job growth and unemployment well below the national rate show that our state is on the right track,” said Markell. “A commitment to increase access to capital, through crowdfunding as well as previous legislation that expands the research and development tax credit, will help support innovation and entrepreneurship that drives economic growth. When combined with progress in strengthening our workforce, streamlining regulations, and leading the nation in broadband availability, these efforts will ensure Delaware remains well-positioned to thrive in the new economy. I thank the General Assembly for their overwhelming support of House Bill 327.”
In recently passed legislation, championed by Delaware Rep. John Carney, states were given more flexibility in permitting residents to more easily invest in startups.
Much of this investing can be done through what is known as crowdfunding. This year, the amount of investment is expected to exceed the funding provided through traditional sources like venture capital. The changes made by HB 327 will remove barriers in state law.
The bill would enable Delaware-based companies to offer equity stakes to Delaware residents or other Delaware businesses over internet platforms. (Due to Federal law, Delaware cannot permit investment from residents of other states.)
Although the bill would require certain disclosures in order to ensure the validity of the offerings, it does not require issuers to make detailed financial disclosures that might be prohibitively expensive for many small businesses and start-ups. A business can raise up to $1 million over a 12-month period and an individual can invest up to $5,000 in any one offering.
The state Department of Justice’s Investor Protection Unit will maintain oversight of sale registration and equity offerings.
A bipartisan group of lawmakers and other leaders issued statements when the bill was introduced earlier this year, demonstrating the broad backing for this effort as a way to support Delaware startups and small businesses.
“This bill is a recognition of the changing landscape of how businesses are conceived and financed in the 21st Century,” said State Rep. Lyndon Yearick, R-Dover South. “There are many examples of businesses that got their start through online crowdfunding. It’s time we allow Delaware entrepreneurs to tap into a resource that could help them turn a dream into a viable enterprise.”
“This is a good way to enable small businesses to more easily access the capital they need to grow,” said Rich Heffron, president of the State Chamber of Commerce. “We support this legislation, and hope to see it become law.”
