We are all well aware that the majority of job growth and economic activity are driven by small business. From the Wall Street Journal to the New York Time to CNBC, all have ran story after story confirming that small business is the engine that drives economic growth.
One state that has, for the most part, been left behind in the growth of small innovative businesses is Illinois. Budget issues and folks leaving our state have hampered small business growth. What can be done?
Recently we are see legislative changes that have the potential to make a dramatic improvement in this negative phenomenon. In May of 2016, Illinois unanimously passed the Illinois Intrastate Offering Exemption (Illinois Investment Crowdfunding Law HB 3429). State Representative Carol Sente filed the bill written by, Freeborn Peters partner / attorney, Anthony Zeoli supported by the SBAC and (state registered and regulated) Illinois intrastate crowdfunding portal VestLo.com. This major accomplishment now appears to be only the beginning in the move to once again make Illinois the leader in small business growth.
Two new Bills have been introduced to the State Legislature by Carol Sente and the team involved in last years victory. In late October, 2017 the SEC updated Rule 147 (Intrastate Investment Exemption) allowing for improved conditions for Intrastate crowdfunding, by creating Rule 147A. The original rule 147 allowed for some 29 states to enact laws allowing local businesses to raise funds from its neighbor (state residents) without the onerous (and expensive) regulation of the Federal government. Working directly with state regulators, in most cases the individual states, Secretary of State Securities division. The updated rules require the states to amend the current Intrastate crowdfunding laws to take advantage of these positive changes to the federal update.
Illinois, under Carol Sente’s leadership, has taken the lead by filing bill HB 3791 on Feb. 10th, 2017. Among other things, this amendment will allow for companies formed in states other than Illinois (ie. Delaware) who operate and employ in Illinois to raise growth capital under the Illinois Investment crowdfunding law. The new bill which enables for the rules under the new 147A, will also allow companies to receive local investment when complying with one of the 3 requirements (80/80/80 rule) that allow companies to meet the intrastate exemption. Rather than being required to have 80% of revenue, 80% of employees and 80% of use of funds within the state. Now an Illinois small business will only need to meet ONE of these 3 requirements rather than all 3. Yet another advantage of enacting HB 3791 is the ability for small business to use General Solicitation, meaning although investment must come from Illinois residents, companies can advertise their offering without fear of losing the exemption when social medial or other means take the advertisement beyond state lines.
BUT WAIT… There’s MORE (much, much more)
Launched in 2011, the State of Illinois passed the Illinois Angel Tax credit (25% of Angel investments) enabling for $10,000,000 in state tax credits for investors in qualified investment in qualified Illinois based businesses. That law expired effective Dec. 31, 2016.
In a potentially revolutionary move, Rep. Carol Sente along with State Representative Elgie R. Sims, Jr. and Representative Emanuel Chris Welch have filed a bill (HB 2946) to re-instate and IMPROVE the Angel Investment Tax credit to $20,000,000 and run through 2021.
Why is this revolutionary??
Bill HB 2946 allows (and encourages) investment in Illinois business from not only accredited Angel Investors but from ordinary unaccredited Illinois residents!!
Qualifying investment opportunities are required to set aside 25% of the investment to unaccredited investors through the Illinois Investment Crowdfunding law. This encourages Angel investors to “slice off a piece” of their vetted investments allowing participation to regular citizens through a registered Illinois Intrastate Investment Crowdfunding Portal. The new bill also loosens the requirements for businesses eligible for the Illinois Angel Tax credit to extend beyond Technology companies to include wholesale, retail, hospitality and more. If enacted this Illinois law will be the 1st of its type in the United States, modeled after the run-away success of the equity crowdfunding tax credit in the United Kingdom. Small business investment exploded in the UK following enactment of their small business investment tax credit.
This law would help to fulfill the vision of VestLo, Anthony Zeoli and the Small Business Advocacy Council by encouraging Angel Investors and Angel groups to include Illinois residents of average means to participate in the types of small business private investments that have the potential to create real wealth and growth in Illinois.
We encourage EVERY Illinois resident to contact your local State Representative, State Senator and Governor Rauner to support these incredible bills to become the Law. They have the potential to truly impact the economy and job growth in Illinois.
Disclaimer: The author of this article is neither an Accountant or and Attorney. Illinois Business owners and Investors are encouraged to speak with a licensed Attorney and/or CPA before filing for this type of Tax credit / Tax incentive when available.