Crowdfunding FAQs
In the Frequently Asked Questions (FAQs), the Securities Division is providing guidance on the securities registration exemption permitted under the North Carolina PACES Act.
These FAQs are not rules or regulations. These FAQs are also not legal or investment advice.
You should carefully read the statute and the associated rules before trying to claim the NC Paces Act exemption for your securities offering or investing in a security that claims to be exempt under the NC Paces Act. You should consult with an attorney who specializes in securities matters if you have questions about interpreting the statutes or rules or if you need legal advice regarding a securities offering.
The Securities Division may update these questions and answers periodically.
Crowdfunding is a way to solicit money from a large number of people and is usually done through the Internet. There are different kinds of crowdfunding. Under the NC PACES Act, we regulate the kind of crowdfunding related to securities.
No.Those Web sites allow companies to accept money as a donation or in return for a reward like a t-shirt
The type of crowdfunding we regulate under the NC PACES Act involves raising money by selling securities to investors
There is no single definition of the term “security.Generally, a “security” is a passive investment and is either:
- a debt, or
- an ownership interest in some kind of business or venture
An investor can buy a security to share in the profits generated by the business. The investor plays no active role in managing the business.
Generally, securities have to be registered with us or with the U.S. Securities and Exchange Commission, called the “SEC”.
All securities have to be registered unless there is an exemption from registration.
There are nearly 36 exemptions from securities registration in NC. One exemption may suit the needs of a business better than others. Because that’s true, businesses often consult a securities professional or an attorney before starting a securities offering.
Yes. There is an exemption from registration under the NC PACES Act. A business has to file documents with us and take other actions before it can use the exemption.
The NC PACES Act is the short name for a law passed by the North Carolina General Assembly in 2016. The NC PACES Act creates a new exemption from registration for securities offered by local businesses seeking to raise money from local investors using “crowdfunding”. You can read the law on our website at /divisions/securities or on the General Assembly’s website at http://www.ncleg.net/EnactedLegislation/Statutes/PDF/BySection/Chapter_78A/GS_78A-17.1.pdf.
The NC PACES Act may be helpful if a small business wants to raise funds and wants to use the Internet to reach investors.
Generally, businesses located in NC and registered and active with our Department’s Corporations Division can use the NC PACES exemption.
Yes. There are some businesses that can’t use the NC PACES exemption. For more information, you may want to read:
The NC PACES Act under G.S. 78A-17.1 and NC PACES Act rules 18 NCAC 06A .2004 and 18 NCAC 06A.2117. .2117.
You can also call us at (919) 814-5400 or toll free at (800) 688-4507.
No. An investor’s principal residence has to be here in North Carolina to invest in an NC PACES offering.
An investor can invest:
- up to $5,000 in an NC PACES securities offering, or
- any amount if the person is an “accredited investor”.
An “accredited investor” is someone with significant assets available to invest. “Accredited investor” is defined by federal law. NC PACES relies on the federal definition.
Yes. There are two different kinds of NC PACES securities offerings:
- an “NC PACES Offering” or NCPO and
- a “Local Public Offering” or “LPO”.
An NCPO is a securities offering where a business is trying to raise up to $2 million. The business:
- has to use the Internet to communicate with investors
- can sell most types of securities, and
- has limits on how it advertises the securities offering.
A “Local Public Offering” or “LPO” is a securities offering where a business is trying to raise a maximum of $250,000. The business:
- doesn’t have to use the Internet to communicate with investors but it can,
- can only sell one of these kinds of securities:
- equity,
- debt, or
- revenue share agreements, and
- has fewer limits on how it advertises the securities offering
A securities offering can be offered for up to twelve months
Yes. A business has to provide all material information about the NC Paces securities offering in a disclosure document and must provide that disclosure document to all investors. That way, the investors can make informed investment decisions.
We don’t know what you think is “a lot”. We can tell you that a business that wants an NC PACES exemption has to file significantly less paperwork than if it was registering a securities offering.
A business has to tell the investors how it will use the money it raises in its NC PACES securities offering. The business will not get any of the money until it raises at least 20% of its goal. Until that time, the money will be kept in an escrow account.
Call the North Carolina Securities Division and if you have lost money, you may want to contact an attorney to try to get your money back.
A business that chooses to use the NC PACES Act to raise money is called an issuer.
No, but many can. Your business can use NC PACES if:
- your business is located in North Carolina, and
- your business is registered and active with our Department’s Corporations Division
For example, business entities that can use NC PACES include
- LLCs,
- Corporations,
- Limited Partnerships, and
-
Other business entities that are:
- Legally formed in North Carolina, and
- Have a certificate of authority to do business in North Carolina.
Yes. An individual can’t use the NC PACES exemption. A business entity has to be formed in North Carolina and/or registered with our Department’s Corporations Division to be able to use NC PACES
Yes. Under NC PACES, there are some business activities that are not allowed if the business wants to claim the NC PACES exemption. Here are some examples:
- A company whose sole purpose is buying and selling other financial interests, like an investment company or one issuing viatical settlement contracts;
- A company that has not defined or described how it will use the money, like a blind pool, commodity pool, or a blank check company;
- A company whose business is lending money, like a peer-to-peer or similar online marketplace lender; or
- A real estate investment trust (REIT).
These are just some of the activities that are prohibited. See Rules 18 NCAC 06A .2004 and 18 NCAC 06A .2117 for additional restrictions.
Yes, there are two different kinds of NC PACES securities offerings:
- An NC PACES Offering (NCPO)
- A Local Public Offering ( LPO
Money. You can’t raise more than $250,000 with an LPO. For an NCPO you raise up to $1 million and, if you have been in operation for one year or more and you provide audited or reviewed financial statements, you can raise up to $2 million.
Advertising. For an LPO, you can advertise as long as we approve the content. For an NCPO you can’t advertise.
Website. For an LPO, you do not have to use a website to post information about your offering, but you can if you want. For an NCPO, you have to have a platform. A platform is a website where information is provided and has a communication channel. A communication channel is a place for people to communicate about your offering (it’s like a message board or forum). You also have to post on your platform your official documents and information showing your offering’s progress toward the goal.
Securities. For an LPO, you can only offer simple types of securities like bonds (that is where investors lend you money), and equity (that is where investors can share in your profits). For an NCPO you can offer more complicated types of security.
There are several other differences, but these are the big ones.
You can raise $2 million. NC PACES crowdfunding allows businesses to raise up to $2 million by offering securities.
No registration. While most securities have to be registered, an NC PACES crowdfunding security is exempt from registration. That means that the issuer does not have to register the security with the regulator. That does not mean the issuer does not have to do anything. The issuer still has to file some paperwork with the regulator in order to be exempt. This is called an “exemption filing,” but it is not the same as “registration”. The issuer also has to maintain its exemption by continuing to follow the rules.
It’s all home grown. An NC PACES crowdfunding securities offering happens entirely in North Carolina: You’re in North Carolina, your investors are in North Carolina and your primary regulator is in North Carolina.
Easy access to investors. An NC PACES securities offering gives you the chance to raise money from your friends, family, neighbors or through the Internet.
Less costly. NC PACES securities offerings may be less expensive than other methods of raising money.
There may be other methods of raising money that would allow you to do these things too. You may want to consult a securities lawyer to find out about other options.
No guarantee. There’s no guarantee that you will raise the money you need, and you could have some expenses. At a minimum, you will have a $150 fee to file your claim of exemption.
Obligations to investors. You will have ongoing obligations to your investors. You may change your relationship with your friends and family if you enter into an issuer-investor relationship with them.
Limited time. You only have one year to raise the money under NC PACES.
Limits other options. You may not be able to raise money in other ways once you start an NC PACES securities offering.
Follow the rules. While NC PACES securities offerings are less regulated than some other kinds of securities, you still:
- need to comply with the NC PACES Act (click here) and
- need to comply with the NC PACES rules (click here)
So pay attention and read the rules.
There may also be risks that are specific to your business.
There are many questions you may want to consider when deciding if an NC PACES securities offering is the best way to raise money for your business. For example, you may need to think about questions like:
1.How much money do I want to raise?
2.What’s the smallest amount of money I need to make a difference in my business?
3.What will I do with the money I raise?
4.What types of securities should I offer?
5.What sort of investors would be best for my business?
6.How will investors find out about my securities offering? Can I advertise my securities offering?
7.How fast will I be able to raise the money?
8.Will I be able to comply with the law and rules?
The answers to the questions above will help you decide the details of your securities offering. For example, the terms below are details you will have to describe in your forms and your disclosure document that you prepare for your securities offering. They correspond with the questions above.
1.Target offering amount
2.Minimum offering amount
3.Use of proceeds
4.Equity debt revenue share or something more complex
5.Accredited or non-accredited investors
6.NCPO or LPO
7.Target Date
8.Attorney assistance or I can handle it myself
No. The NC PACES Act does not require you to hire an attorney to assist with an NC PACES securities offering. However, securities laws are complicated. We understand that there are costs to hiring an attorney, but you should be aware that it’s probably more expensive to hire an attorney to fix things after they have gone wrong. Here are some examples of questions you may want to ask a securities attorney that is familiar with NC PACES:
- Is raising money with a securities offering right for my business?
- Is an NC PACES securities offering the right type of security for my business at this time?
- Is having investors right for me and my business?
- What liabilities will my business have with an NC PACES securities offering?
- What will I have to do after I start my NC PACES securities offering?
- What will I have to do when I have finished my NC PACES securities offering?
- How should I prepare my NC PACES disclosure document so that I can protect myself, my business, and my investors?
1. Read all of the FAQs. It will help you make the decision about what type of NC PACES securities offering
2. Decide if you want to do an NCPO or an LPO.
3. Read the NC PACES Act and the Rules.
4. Start gathering the information you need so you can fill out the Forms NCE or NCE-LPO and Disclosure
5. Select your service provider(s).
6. Create your disclosure document.
7. Complete your forms.
8. Set up your mandatory meeting with us if you are considering an LPO. Call us if you have any questions at
(919) 814-5400 or toll free at (800) 688-4507.
9.File your forms and pay the fee.
10.Wait until you receive a Notice of Compliance before offering your security
An investor can invest:
- up to $5,000 in an NC PACES securities offering, or
- any amount if the person is an “accredited investor”.
You have to submit all of these things to us at the same time:
- Either an:
- NC Notice of Intrastate Claim of Exemption (Form NCE), or
- NC Claim of Intrastate Claim of Exemption and Addendum - Local Public Offering (Form NCELPO),
- A disclosure document that complies with the rules
- An escrow agreement that complies with the rules
- Any other contracts with service provider(s) relating to the securities offering, and
- The nonrefundable filing fee of $150.
Telephone: 919-814-5400 or toll free at (800) 688-4507
E-mail: [email protected]
On our website at: /divisions/securities
It depends on what form of business you are
-
Corporation or nonprofit Corporation
- A person authorized to sign pursuant to G.S. 55-1-20 or G.S. 55A-1-20 for a domestic or foreign corporation or nonprofit corporation
-
Limited Liability Company (LLC)
- All the issuer’s managers for a limited liability company
-
Any other form entity:
- All persons managing the affairs of, or performing similar functions for an issuer that is not a corporation or a limited liability company
[email protected] NOTE: You can’t use email to file a Form NCE or NCE-LPO because you have to include the nonrefundable filing fee.
NC Department of the Secretary of State
ATTN: Securities Division (CF)
PO Box 29622
Raleigh, NC 27626-0622
NC Department of the Secretary of State
ATTN: Securities Division (CF)
2 South Salisbury Street
Raleigh, NC 27601
It will depend on several different factors. One thing that will make a difference in how long it takes is whether we have questions. We will contact you if we have questions. We will also let you know if there is something missing from your filing. You will likely hear from us within two weeks. Remember that you cannot offer securities until you have received a Notice of Compliance from us.
Yes. Your investors have to put their investments into an escrow account and the money will stay there until you have reached your minimum offering amount. Your minimum offering amount is the amount you decide you want to reach before you can use the money. For an NCPO it has to be at least 20% of your goal and for an LPO is has to be at least 25% of your goal.
After you reach your minimum offering amount, you can decide how you want to receive your investors’ money and where you want to put it, but you have to describe the process up front. You can continue to put the funds in the escrow account, you can create a new account, o
An escrow account is an account that is held by a neutral third party. The neutral third party doesn’t release the money until certain conditions are met, like meeting your minimum offering amount. Every issuer has to have an escrow account and has to show us the escrow agreement.
You can start offering securities to investors when you receive a Notice of Compliance from us.
“Offer” means any attempt to sell a security. An offer may be oral or written. An offer includes attempts to condition the public mind or arouse public interest generally in the issuer’s securities by publication of any information and statements, and publicity efforts, including any advertising materials. NOTE: Examples of ways in which an offer may be made are conversations, advertising, social media posts, presentations, emails, brochures, circulars, press releases, or similar communications.
“Offer” is an important legal term and means much more in the securities world than it does in other business operations. We recommend that you direct questions about the meaning of “offer” to an attorney with expertise in securities laws.
Yes. You must provide the potential investor with the disclosure document at the time you make the offer. That means you must:
- hand over a hard copy of the disclosure document,
- email a copy of the disclosure document,
- email a link to a website where the disclosure document are posted, or
- provide a document with the website address where the disclosure document is posted.
Use the Internet. Both NCPO and LPOs can have websites that promote the offering. There are very specific rules about what information you may include so check the rules.
News stories. If a reporter wants to write or talk about your offering, that is absolutely fine. You can even let a media outlet know about your business and your plans for the future, but be careful:
- NCPOs cannot prepare, pay for, authorize or approve the articles. That means you may provide information for an article that is published independently, but you cannot direct or dictate the content.
- LPOs can prepare, pay for, authorize or approve articles, but we have to review the content before the articles are published.
Advertising. All issuers can publish advertisements that contain the certain, basic information allowed by the crowdfunding rules. LPOs can publish more information if they get the content approved by us
Events. LPOs can host events where they invite investors to hear about their securities offering. NCPOs can’t! If an LPO wants to host an event, it must notify us.
Customers. Of course you can raise money from your customers, if they are residents of North Carolina.
Yes, with the following conditions:
- If you are conducting an LPO: You have to get all content you’re going to include in social media posts pre-approved by submitting it to us.
-
If you are conducting an NCPO: You can advertise using an “advertising notice” if:
- the notice includes a link to the platform where the disclosure document is posted
- you include a disclaimer that sales shall be to “NC residents only”, and
- you only include the terms of the securities offering and specific, limited factual information about the issuer.
Yes. You just need to tell us who and include their contact information in your disclosure document.
Yes. There are people who are not allowed to participate in offering securities (even crowdfunding securities) because they have previously violated securities laws. We can help you check for violations if you email or call us.
Also, an LPO may not use a funding portal or a registered broker-dealer or salesman to offer securities.
Residents of North Carolina can invest any amount of money if they are accredited investors or up to $5,000 if they are not accredited investors.
An accredited investor is someone with at least $1 million in investible assets or an income of at least $200,000 per year.
You must reasonably believe that the investors who invest more than $5,000 are accredited investors. If an investor attests he/she is accredited, but you have reason to doubt it, you should ask for a certification of accredited investor status. There are companies that can provide these certifications.
That answer is not in the NC PACES Act. However, federal law says other requirements kick in if you have:
- more than 500 non-accredited investors, or
- more than 2,000 total investors.
It’s complicated and you should really check out the federal requirements if you expect to have a lot of investors
Yes. They have to provide evidence that they have a principal residence in North Carolina.
Examples of things you can use to show that your investors’ principal residence is in North Carolina include:
- Documentation issued by a federal, state, or local government like a driver’s license or ID card,
- A recently-dated utility bill,
- A pay-stub,
- Information in their state or federal tax returns, or
- A public or private database that you determine is reasonably reliable, including credit bureau databases, directory listings, and public records.
Any investors who are investing more than $5,000 must certify to you that they are accredited investors.
You have to provide quarterly reports:
- to investors directly, or
- to investors by posting them on the funding portal platform or your website if you don’t use a portal. Even if you post it, an investor can still ask for a copy directly from you.
Any investors who are investing more than $5,000 must certify to you that they are accredited investors.
You have to provide the quarterly reports until no securities issued in the offering are outstanding.
You have to include:
- details of the compensation received by each director and executive officer of the company;
- an analysis by management of the business operations and financial condition of the company; and
- details on the progress of the offering toward the target offering amount if the offering is still ongoing.
Yes. There are other things you have to file with us. Here’s a list of the documents you may have to file:
| What do we have to file? | When do we have to file? | Is there a form we have to use? |
Are there any other requirements? |
Changes to information on your Form NCE or Form NCE-LPO |
Copies of your quarterly report | Notices related to the funds you’re raising | An offering conclusion report |
| Within 10 business days of the change | Within 45 days after the end of the quarter |
Within 10 days after:
|
After you conclude your NC PACES offering (which can be no later than 12 months after you get your notice from us) |
Yes, you have to file an amended Form NCE or an amended Form NCE-LPO |
No | No | No |
Yes, you have to:
|
Yes, you have to include the status of the securities offering (how much progress you’ve made toward your goal) | Yes, there are some requirements for the contents of the notices | Yes, the PACES Act and the rules say what you have to include in the report |
Yes. Every securities offering under PACES also has to comply with federal law and rules.
Crowdfunding is a way for businesses to raise money from a large number of people. Crowdfunding usually happens on the internet. There are three kinds of crowdfunding:
- Donation-based
- Rewards-based
- Investment-based.
With donation-based crowdfunding, donors give money and expect nothing in return
With rewards-based crowdfunding, donors give money and get some kind of reward, like a t-shirt. You may have heard of Kickstarter, Indiegogo or GoFundMe. Those are examples of websites used for donation-based and rewards-based crowdfunding.
With investment-based crowdfunding, investors expect to share in the business’ profits. They make the investment by buying a “security”.
The differences between these types of crowdfunding are important. Donors have no ownership or creditor rights in the business. When investors buy a company’s security, they buy ownership or creditor rights.
There is no single definition of the term “security”. A security is a debt or ownership interest in some kind of business. A security usually exists when a buyer provides money for a company and shares in any profits, but plays no active role in the management of the business. The company that sells the securities is called an issuer.
It is important to know because federal and state laws give investors certain legal rights. Investors have the right to know details about an investment before they hand over any money. This includes details about the business and the people who run it.
The seller or promoter of a security may not lie to an investor, leave out key information, or defraud the investor
These are just some of the activities that are prohibited. See Rules 18 NCAC 06A .2004 and 18 NCAC 06A .2117 for additional restrictions.
Investors have the right to sue persons involved in the securities offering over violations of the law.
In general, issuers must register their securities with:
- the US Securities and Exchange Commission (SEC),or
- the state(s) in which they wish to sell them.
The appropriate regulator must approve the securities offering before investors can buy the securities.
If a securities offering meets certain conditions, it may be able to claim an exemption from registration. That means the company does not have to register the securities with the regulator. However, the company still has to file paperwork with the regulator in order to be exempt. This is called an “exemption filing”. It is not the same as “registration”.
Exemptions often limit how a business may sell or market its securities
These FAQs only talk about North Carolina investment-based crowdfunding and its exemption under the NC PACES Act. The SEC and another organization called FINRA regulate federal crowdfunding.
The NC PACES Act is the short name for a law passed by the North Carolina General Assembly in 2016. The NC PACES Act creates a new exemption from registration for securities offered by local businesses seeking funds from local investors using crowdfunding. You can read the law on our website at /divisions/securities or on the General Assembly’s website at http://www.ncleg.net/gascripts/Statutes/StatutesTOC.pl?Chapter=0078A.
Startups. You can now invest in startup companies just like more experienced investors do. And it is easy to do.
Community. An NC PACES securities offering gives you the chance to invest in a local business.
Purpose. An NC PACES securities offering can give you a chance to invest in a product or business you know and like.
There may be other kinds of investments that would allow you to do these things too. You may want to consult an investment professional to find out about other options.
Every investment comes with some risk.
Less regulation. Businesses that offer NC PACES securities offerings are not evaluated by the regulator on their ability to earn money or for the truth of the statements in their filings. The regulator merely determines that the NC PACES securities offerings’ filings comply with the filing requirements and the rules so it’s up to you to do some research.
New businesses. Some of the businesses that offer securities through NC PACES are startups or in the early stages. Investments in startups or early stage businesses may be risky. Many businesses fail in the early years. You need to research the investment yourself or hire a licensed professional to help you.
Illiquid. If you buy an NC PACES investment, you have to hold on to it for at least 6 months before you can sell it. That’s because federal law says so. And, then you’ll have to find a willing buyer. Not every new business or promising technology is successful. There may not be a buyer for that particular investment when you want to sell. If you do find a buyer, you’ll have to comply with federal and state securities laws when you sell.
Individual business risk. Every securities offering will also have risks that are specific to the issuer’s business.
You should not invest any money that you can’t afford to lose. You have to decide for yourself how much risk to assume. If you are risk-averse, are just starting to invest, have only a little money to invest, or may need the money in the short term, crowdfunding investments may not be for you.
The best thing you can do is to do your homework!
Look for information like:
- What is the business?
- Who are its officers?
- What is their business plan?
- What are the risks of investing in this business?
- How do they intend to use your investment to make money?
- Who are their competitors?
- How long before you could expect to see a return?
- What type of securities are they offering – stocks (equity) or bonds (debt)?
- If there are financial statements, have they been audited or reviewed?
- Do you think it’s really too good to be true?
The questions above are just a starting point.
Disclosure document. The issuer has to give you a legal document. It is called a disclosure document and it may have attachments. To be able to understand what you’re being asked to invest in, you must read all of the disclosure document and any attachments.
Internet. The issuer may have a website or platform on the Internet with additional information that will be helpful. The issuer’s platform will include:
- A copy of the disclosure document and
- A communications channel. A communication channel is a type of forum or internet message board where you can interact directly with the issuer. You can also share information with other people interested in investing or who have already invested.
Business Registry. You can find more information at the Department’s online business registry: http://www.sosnc.gov/search/index/corp.
Securities Division. You can call us to find out if the security, firm or salesperson has filed any documents with us before turning over any money. In most cases, the securities and the people or firms that sell them must file or be registered with us. This one of the best things you can do to reduce the chances of falling victim to fraud. You can call us at (919) 814-5400 or toll free at (800) 688-4507
Professional. You may want to contact an investment professional for help
Remember that no regulator confirms the truth of any statements in the disclosure documents or the issuer’s financial statements.
Yes. You can only invest in an NC PACES securities offering if your principal residence is in North Carolina
Yes. You will have to demonstrate that your principal residence is in North Carolina at the time you invest.
Examples of things you can use to show that your principal residence is in North Carolina include:
- Documentation issued by a federal, state, or local government:
- A driver’s license, or
- A government ID card,
- A public or private database that the issuer has determined is reasonably reliable, including credit bureau databases, directory listings, and public records,
- A recently-dated utility bill,
- A pay-stub, or
- Information in your state or federal tax returns.
You can invest:
- up to $5,000 in an NC PACES securities offering, or
- any amount if you are an “accredited investor”.
An accredited investor is someone with at least $1 million in investible assets or an income of at least $200,000 per year. You can read the definition at https://www.investor.gov/additional-resources/news-alerts/alerts-bulletins/investor-bulletin-accredited-investors.
You will need to attest that you are an accredited investor if you want to invest more than $5,000. If the issuer has any doubt about your accredited investor status, they may require you to provide a certification of accredited investor status.
You should send your money where the disclosure document tells you to send your money. Until the issuer has reached at least 20% of its goal, you will be sending your money to the escrow agent. After that time, these details will be spelled out in the disclosure documents and you may be sending your money to the issuer directly
The disclosure document will have directions about how to invest in the securities offering and where to send your money.
Like you would for any investment, make sure you keep a record of funds you invest
Until the issuer reaches at least 20% of its goal, you may ask to have your money returned to you and the issuer must give it back to you.
A funding portal is in the business of connecting companies seeking capital with investors through an Internet website with a “platform”. A funding portal operating under the NC PACES Act has to register with us as a North Carolina Intrastate Funding Portal (Funding Portal).
Any business entity can register as a Funding Portal if it:
- is organized under or is authorized to do business under North Carolina law, and
- has its principal place of business in North Carolina
A “platform” is a website that provides information and allows people to publicly communicate with each other online using a communication channel. Under NC PACES, a Funding Portal is required to have a platform that has:
- A communication channel where prospective investors, investors, and issuers can share ideas or opinions about local businesses raising money through NC PACES
- A copy of each issuers’ disclosure document, and
- Some way of showing progress toward each issuer’s goal.
A Funding Portal cannot:
- provide investment advice or recommendations,
- solicit purchases, sales or offers to buy the securities offered on its platform,
- compensate its workers for soliciting or selling securities listed on its platform,
- hold or manage or handle investor funds, or
- be compensated based on the amount of securities sold.
Yes. It can, but the Funding Portal cannot receive transaction-based compensation or compensation based on the amount of securities sold. Federal and state laws require that transaction-based compensation only be received by registered broker-dealers.
There are multiple fee models. A Funding Portal can offer:
- an all-inclusive subscription service
- a menu of flat-fee services,
- flat-fees based on temporal milestones, or,
- a combination of all three.,
The Funding Portal must include its proposed fee structure as part of its filing. The Administrator will review the Funding Portal’s proposed fee structures.
The Funding Portal has to register with us. The issuer also has to include information about the portal when it files with us.
A Funding Portal must file a Form North Carolina Intrastate Funding Portal (Form NCFP). A Funding Portal has to register with us at least 10 days before it posts any NC PACES securities offerings on its Web site.
Your forms can only be signed by be signed by an officer of the entity authorized to sign for the entity.
Online
US Postal Service :
NC Department of the Secretary of State
ATTN: Securities Division (CF)
PO Box 29622
Raleigh, NC 27626-0622
Hand Delivery or Delivery Service
NC Department of the Secretary of State
ATTN: Securities Division (CF)
2 South Salisbury Street
Raleigh, NC 27601
It depends on several different factors. One thing that will make a difference in how long it takes is whether we find anything we have questions about. We will contact you if we have questions. We will also let you know if there is something missing from your filing. You will likely hear from us within one week.
Yes. A Funding Portal has to amend its Form NCFP if something changes. Every time the Funding Portal adds or removes an issuer listed on its website, it has to notify us in writing.
Yes. A Funding Portal’s registration expires on December 31st each year. If the portal wants to continue operating as a Funding Portal, then it has to renew its registration within 30 days by filing an amended Form NCFP.
The Funding Portal has to perform some research to ensure that none of the businesses it lists on its web site, or people associated with these businesses, are disqualified.
A Funding Portal also has to make certain records and keep them.
Funding portals and people associated with them are required to observe:
- high standards of commercial honor, and
- just and equitable principles of trade.
These are the same standards that apply to a registered broker-dealer.
Sure. In fact, in some cases it is required to do so
The Funding Portal is required to deny access to its platform if it has a reasonable basis for believing that the business or anyone involved in the offering are subject to disqualification or conducting a fraud.
Yes. A Funding Portal can receive an interest in an issuer listed on its site. It can only invest if that interest is received as compensation for the services it provides in connection with the issuer’s offering. Any interest received as compensation must be of the same class that is sold to investors.
Before accepting any interest in one of its issuers, a Funding Portal should read the rules.
Escrow protects money when one party to a deal has some conditions it must meet before it is entitled to receive the money. The party that pays the money gives the money to a neutral third party. The neutral third party holds the money in an escrow account. The third party doesn’t release the money until the conditions are met.
Escrow protects the investor. The issuer can’t access the money until certain conditions are met. All investor funds are collected in one place.
Escrow protects the issuer. The issuer will not get the money until the escrow agent has verified that the funds have cleared
An escrow agreement is a contract that describes how an escrow account will work. Each business using the NC PACES exemption has to enter into an escrow agreement.
Every issuer raising funds using the NC PACES exemption. The issuer’s escrow agreement has to direct investor funds to an escrow account. The funds raised from the investors have to be deposited in the escrow account.
Yes. An issuer raising capital using NC PACES must direct investor funds to an escrow account that:
- is FDIC insured,
- is a segregated account for each NC PACES securities offering, and
- is maintained by an escrow agent
Lawyers have to comply with additional escrow account requirements.
There are additional escrow account requirements in the NC PACES Act and rules.
Yes. Escrow agreements have to include all the contract terms and useful information like:
- the name of the escrow agent
- the bank or depository institution where the account will be,
- when and how the issuer can access the money, and
- when and how investors can get their money back.
There are additional escrow account requirements in the NC PACES Act and rules. There may also be things that the bank or depository institution requires in its escrow agreements.
Any of the following can serve as an escrow agent:
- A bank or depository institution,
- A registered securities broker-dealer, and
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A lawyer:
- licensed in North Carolina,
- in good standing with the NC State Bar, and
- with at least one law office physically located in North Carolina.
No. The escrow agent is not required to pay interest to an investor. The escrow agreement will include information about whether the escrow account is interest-bearing or not..
An issuer using the NC PACES exemption to raise money has to include a copy of the escrow agreement:
- In the disclosure document it gives to prospective investors and investors, and
- In the documents it files with us.
Yes. The issuer has to submit an amendment for any material changes to the disclosure documents, which includes the escrow agreement, to:
- the investors, and
- to us
The answer depends on whether you’re asking about releasing funds to the issuer or to the investors
An escrow agent will release money in the escrow account to the issuer when the funds raised are at least 20% of the goal for the NC PACES securities offering
An escrow agent will release money in the escrow account to the investor when:
- The minimum amount set by the issuer isn’t met by the deadline or
- The investor asks for the money back before the issuer raises at least 20% of its goal for the NC PACES securities offering.
Yes. An escrow agent and the issuer are required to file written notices of release of funds from the escrow account with us, and the issuer must also send a notice to the investors.
Online Submission of Crowdfunding Filings
A site account is required to file documents online
To create a Site Account:
1.Go to the North Carolina Secretary of State website – https://www.sosnc.gov/
2.Select the “Securities” tab in the white horizontal bar near the top of the web page
3.Select “Create/Manage Site Account” in the “Online Services” block in left hand column
4.Complete and submit form to create account
5.Record the User ID and Password, as you will need this info to return to the account.
Prepare the form/document for submission
1.Select “Crowdfunding” in the “Securities Division” topic block in the left hand column..
2.Select and complete the appropriate form listed under “Forms.”
3.Save the completed document as a PDF file.
How to Upload the Document for Filing Online
1.On the Crowdfunding Web Page
2.Select “Crowdfunding PDF Upload” under “Online Submission.”
3.Read the instructions and complete the fields as required for filing
4.You will be directed to upload the saved PDF document. Note: You can only upload one document at a time.
5.Upload the document using the “browse” button and continue the online process which will direct you to
enter payment information and submit payment.
6.After you have completed the online process, you will be directed to the “Transaction Successful Screen.”
7.To print a receipt click on the invoice number on the “Transaction Successful Screen” to open and print invoice