How Will Beneficial Ownership and Blue Sky Fees Legislation Impact the Startup Ecosystem?


By: Pat Gouhin, Chief Executive Officer

One of the fundamentals pillars of the Angel Capital Association is protecting and advocating for the rights of angel investors and the entrepreneurs they support. 

Join ACA on Wednesday, September 9, for a special two-part webinar to join subject matter experts from Assure, Carney Badley Spellman, and GrayRobinson as they discuss the current legislative environment as it relates to pending legislation on beneficial ownership and blue sky fees. 

Proposed legislation for the Anti Money Laundering Act could severely impact the small business community and impinge upon an economic recovery. In addition to data security, privacy, and reporting burdens, the Angel Capital Association believes that passage of these provisions would significantly dampen investment in small, start-up companies that are the engine fueling economic growth and job creation in our country. Forcing small businesses with fewer than 21 employees to report who every person is that has ownership in that business will present a burdensome reporting requirement that will jeopardize growth. If these startups don’t comply, they face substantial fines and potential jail time.  The legislation would attempt to shift the reporting requirements from large banks – those best equipped to handle reporting requirements – to millions of small businesses – those least equipped to handle reporting requirements.

We believe removing the “beneficial ownership” provisions is in the best interest of maximizing economic growth, a lesser, more acceptable position would be to remove the “control” clauses while maintaining the 25% ownership threshold and concurrently inserting provisions that would allow beneficial owner(s) who are an LP or LLC that have already otherwise disclosed beneficial owners in its FEIN or corporate charter documents to be exempt from this reporting requirement.  We are recommending a carve out safe harbor for passive investors who bought preferred stock as part of a collective arm’s length financing, or passive investors owning less than 5%, or both.

Part II of the webinar will feature Jeremy Neilson of ACA Partner, Assure, who will provide an overview of blue sky laws and associated fees. These state regulations were established as safeguards against securities fraud. Every state has varying laws which typically require registration of new issues which includes financial details of the deal and all involved.  The result is intended to provide investors with verifiable information to make investment decisions but also create liability for issuers, allowing legal authorities and investors to bring action against them for failing to live up to the laws' provisions.

These laws require that private investment funds register not only in their home state but in every state where they wish to do business. Offerings that fall under Rule 506 of Regulation D of the Securities Act of 1933 qualify as covered securities and are exempt from Blue Sky Laws along with securities listed on national stock exchanges.

Register for the upcoming webinar, Beneficial Ownership and Blue Sky Fees - How Proposed Legislation Could Impact Small Businesses, to learn more!

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