Invest Kansas Exemption reduces cost for small Kansas businesses

Written by Logan Falletti

Before a small business can offer securities such as stock to investors, owners must determine if they may need to register with the Office of Kansas Securities Commissioner (KSC). Registration requires filing extensive documents with KSC and may involve significant legal fees. The “Invest Kansas Exemption” (IKE) reduces the cost for small Kansas businesses by clearing some regulatory red tape. IKE simplifies the regulatory process and requires only a 1-page form, eliminating some amendments and finalizations that are usually made to longer traditional forms. Organizations and small businesses in Kansas can use IKE to raise up to $1 million during a 12-month period without having to register their securities with KSC. Non-accredited investors can invest up to $5,000 in equity or debt securities. Higher amounts are available for accredited investors or high-net worth individuals.

IKE is designed to be used with SEC Rule 147 under the Federal Securities Act of 1933, which regulates intrastate offerings. This rule allows exemptions from federal registrations with the SEC for offerings where all of the investors reside in the same state as the principal office of the issuer. When IKE went into effect in 2011, Georgia created a similar exemption later that year. Officials in North Carolina, Wisconsin, and Michigan have all been in contact with the KSC to learn about IKE as they develop similar programs.

“The more investors know about their investments and what to be careful of, the less problems they have with their investments. Modern securities laws are designed so investors receive good information about investments and opportunities so they can make the best financial decisions about company offerings,” said Steve Wassom, executive director of KSC.

A startup brewery in Wamego is raising capital with the help of IKE after consultation with KSC staff. Austin Hibbs, Amber Campbell Hibbs, Justin Smith, and Christa Smith are partners in Ironclad Brewing Company. Originally two couples wanting to start their own breweries, they became partners when connected by their rural economic development agent. The partners heard of the IKE exemption at a small business development event. Amber Campbell Hibbs says the exemption encourages friends and family to support a new business endeavor, which is important in small towns. With IKE, they hope to have achieved their fundraising goal and open their doors by the beginning of 2015.

“We can have low-level investments from people in the community who want to make a difference and higher-level investments from people who have more money that also want to contribute to the community, and still have a financial interest,” said Campbell Hibbs.

The name “Ironclad” comes from a historical community landmark. The building where the company will be located is known as the Trout and Leach Building, which once housed the Ironclad Company Store.

Even though IKE reduces paperwork for securities offerings, it is still very important for companies using IKE to provide thorough, accurate information to prospective investors. Businesses must be registered with the Secretary of State before applying for IKE. Disclosing all information is key: missing information or failing to list all persons involved can delay approval. Each IKE file is reviewed by Lynn Hammes, director of finance and administration, or other corporate finance staff. Hammes was part of the original working group that designed the exemption.

“One of the things we stress in our conversations with companies wanting to rely on the IKE exemption is the importance of the requirement that all investors be Kansas residents. What we’re hoping for is as people become more aware of this exemption, we will see it used to fund community businesses. We hope we will see more activity as small issuers take advantage of this exemption, to raise the capital necessary to either start a new business or expand an existing business. We think it provides an opportunity to help small towns in Kansas where the existence of a grocery store or another small business is important to the community,” said Hammes.

Kansas Securities Commissioner Josh Ney said, “My office has adopted the Invest Kansas Exemption to help Kansans continue to invest in our local communities. My office will continue to help champion these types of streamlined regulations so that Kansas investors remain protected without placing unnecessary burdens on Kansas businesses.”

The KSC also offers traveling entrepreneurship education sessions for new investors. These half-hour presentations cover securities, investments and the IKE process. They are available to any small business in the state by setting up an appointment with KSC or contacting a Kansas Small Business Development Center.

Representatives from the KSC will be at the upcoming Rural Grocery Summit.

Register for the event at http://www.dce.k-state.edu/conf/ruralgrocery/registration.

Learn more and apply for IKE at http://www.ksc.ks.gov/index.aspx?NID=121.

Contact Ironclad Brewing Company at ironcladbrewingco@gmail.com.