Small Business and Entrepreneur Equity Crowdfunding Act Passed

Gov. Gavin Newsom  Oct. 12, signed Assemblymember Al Muratsuchi’s (D-Torrance) AB 511, the California Small Business Equity Crowdfunding Act. 

The new law will help entrepreneurs and start-up small businesses use federally approved crowdfunding portals to find investors who can provide early-stage seed capital offerings to help jumpstart companies and help them become candidates for larger rounds of financing. AB 511 also provides greater consumer protections to investors participating in equity crowdfunding financing. 

This bill was sponsored by Small Business California and supported by the California Chamber of Commerce, National Federation of Independent Business, National Association of Women Business Owners and many other small business advocacy organizations.

Congress enacted in 2012 the Jumpstart Our Business Startups Act (JOBS Act) which modernized regulations for raising equity capital by establishing crowdfunding provisions. The JOBS Act has facilitated capital access by larger later-stage enterprises, but it hasn’t been effective in providing small businesses with access to critical capital at the seed level. 

AB 511 creates an exemption from state securities qualification to enable a business in California to conduct an offering pursuant to SEC Regulation Crowdfunding without the requirement to provide reviewed financial statements for seed offerings of up to $300,000. AB 511 also provides investor protections not present in the JOBS Act such as an attorney’s fees and costs provision for prevailing investors and a prohibition against class action waivers.