BizTech Law Blog

Michigan Enacts Law Allowing Local Stock Exchanges

On October 22, 2014, Governor Snyder signed Public Act 355 of 2014 into law.  The cardinal rule of securities laws is that a person cannot sell a security unless the security is: (A) registered, or (B) exempt from registration.  Public Act 355 creates a new exemption for secondary sales facilitated by a Michigan Investment Market.

Public Act 355 is closely tied to the Michigan crowdfunding law enacted earlier this year (the MILE Act).  The MILE Act permits qualifying Michigan businesses to sell securities to the “crowd” using the Internet and general solicitation.  Public Act 355 provides an avenue for Michigan investors (including crowdfunding investors) to cash out their investments in the secondary market.[1]

Let’s take a look at the key elements of Public Act 355.

“Michigan Investment Markets” are the heart of Public Act 355.  A “Michigan Investment Market” is a broker-dealer that is exempt from federal registration and provides a market at which securities are sold under an intrastate offering exemption. Public Act 355 creates an exemption for secondary sales of securities facilitated by a Michigan Investment Market if the Michigan Investment Market satisfies numerous conditions, which include making certain information available to secondary purchasers.

Transactions on Michigan Investment Markets are limited to residents of Michigan. Moreover, a Michigan Investment Market can facilitate trading in a business’s securities only if the business: (A) is a resident of Michigan, (B) is doing business in Michigan[2], (C) is not insolvent, and (D) is not a defendant in a pending court proceeding or subject to a current or pending disciplinary court order.

Michigan Investment Markets can charge fees for securities transactions; however, the fees are capped at 5 percent of the value of the transaction.  A broker-dealer that desires to act as a Michigan Investment Market must register with the State of Michigan.  Each registration application is subject to a 60-day public comment period and must disclose detailed information about the applicant.  Moreover, the applicant must pay a $500 application fee (and an annual $250 renewal fee).

Stay tuned for additional analysis regarding Public Act 355.

Please contact me if you have questions.

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[1] The secondary market is a market in which a person is buying a company’s shares from an existing shareholder, rather than the company itself.

[2] Public Act 355 establishes numerous presumptions to determine whether a business is considered to be doing business in Michigan.

Categories: Crowdfunding, Venture Capital/Funding