How is an offering conducted under Arizona’s crowdfunding law?

Under Arizona’s crowdfunding law, a company can raise up to $2.5 million dollars if it provides investors with its audited financial statements, or up to $1 million otherwise, from investors in an offering. An investor can invest up to $10,000 in any company, or if he or she is an “accredited investor” under the Securities Act (typically wealthy individuals), an unlimited amount.

The offering must be conducted through a website operated either by a registered broker or by a person who does not receive any compensation in connection with the offering and who makes a notice filing with the ACC. The website operator may not be affiliated with any company that conducts an offering under Arizona’s crowdfunding law, and the ACC must be given access to the website at all times during the offering.

Prior to commencing an offering, the company must specify the offering period and the target offering amount. The offering period must end no less than 21 days and no more than one year after the offer is first made. All funds invested during the offering period must go to an escrow account maintained by a financial institution authorized to do business in Arizona, and are held by the escrow agent (and cannot be used by the company) until the end of the offering period. If the company raises at least 80 percent of the targeted investment amount before the end of the offering period, it can elect to terminate the offering early. If the company fails to raise at least 80 percent of the target investment amount, the offering is deemed a failed offering and all funds must be returned to investors. An investor may cancel its commitment at any time prior to 48 hours before the expiration of the offering period, or if the company elects to terminate the offering early, at any time within 72 hours after the company provides the investor with notice of the offering’s early termination. Consequently, companies considering an offering under Arizona’s crowdfunding law must be aware of the risks of a failed offering and give thoughtful consideration when determining the target offering amount and the length of the offering period.