New Capital Opportunity for Startup Businesses

A north Alabama state senator is sponsoring legislation that would allow small businesses to raise up to $1 million in startup capital from numerous investors.

The “crowd funding” bill by Sen. Arthur Orr, R-Decatur, has been submitted for consideration in the 2014 legislative session that begins Jan. 14. Crowd funding has been used by political campaigns, artistic projects, and charities and if Orr’s bill is successful, small businesses in Alabama will be able to raise startup capital.

Orr told the Associated Press that the Alabama Securities Commission asked him to introduce the bill.

“It’s difficult for startups to get bank loans and other traditional financing,” Orr said.

A startup Alabama business could use the Internet or social media to attract investors who would be allowed to invest up to $5,000 each. The maximum a new business venture could raise is $1 million. The money would have to be deposited in an authorized Alabama bank until there’s enough to launch the business.

Alabama Securities Commission Director Joe Borg said crowd funding would be limited to Alabama businesses and investors because that’s where the commission has regulatory authority. Borg said that all Alabama fraud laws would apply to crowd funding.

Kansas and Georgia already allow crowd funding but it’s not widely used. “It is an experiment whose time has come,” Borg said.

Congress in 2012 passed the Jobs Act that allows the federal Securities and Exchange Commission to establish rules for crowd funding across state lines. Borg said commission is still working on those rules but for now the legislation will affect small businesses and investors only within Alabama.

-Dana Beyerle