Ohio provides clarification on how its securities statutes relate to Reg CF

A few weeks ago, the State of Ohio was thrust into notoriety(link is external) in the crowdfunding community because the state issued notices to Reg CF issuers organized in the state that they would be required to pay a notice filing fee for their offerings. In response to those notices, CrowdCheck sent a letter to the Ohio Division of Securities (the “Division”) requesting clarification of the filing rules and fees, as well as asking the Division to ease the process for Reg CF issuers. The Division has replied to that letter and provided guidance for Ohio based issuers offering securities under Reg CF. The full letter is available here(link is external).

First, the Division makes clear that unlike some other states that would be required to adopt statutes or rules for notice filings under Reg CF, Ohio’s existing statute is unequivocal that notice filings and fees are required for all offerings of covered securities, as defined by Section 18 of the Securities Act. This includes securities offered under Reg CF. The statutory language does not leave room for rulemakings or guidance altering that requirement.

Second, the Division clarified that the issuer may pay an initial fee and increase that fee later if needed. The initial filing fee includes a flat filing fee of $100 plus one-tenth of one percent of the amount “to be sold” in the state of Ohio. In a separate conversation with CrowdCheck, the Division informed CrowdCheck that all securities sold by Ohio based issuers would be considered “to be sold” in Ohio. Ohio’s letter makes it clear that this can be the “target” amount, not the oversubscription amount, which is typically a lot higher. If the issuer sells more in the state than originally intended, the issuer can file an amendment to increase the fee. For Ohio based Reg CF issuers, this means that the issuer can make an early determination of the amount of sales it will make necessary to reach its target offering. If the issuer sells more than that amount, it should plan to plus-up the fee at a later date.

Third, if the issuer fails to reach its target offering amount and the offering fails, it may request a refund for all but the flat filing fee of $100.

Fourth, the Division is unable to rely on filing made on EDGAR and requires paper copies of the Form C. This is unfortunate because of the nature of the Form C. The Form C is intended to be a digital first filing, with an XML portion and disclosure requirements that may be satisfied through slide decks, videos, and other online media. Standard practice has been to produce an offering statement that meets all the requirements and supplement that document with digital materials. All of these materials constitute the Form C. Issuers should be prepared to provide these materials to the Division in paper form.

 Nevertheless, the guidance from Ohio is helpful for issuers because it clarifies their obligations under Ohio law.

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