Small Business; Financing

Authorizes small companies to raise capital through small
corporate offering registration (SCOR), a uniform registration
system that allows small companies to obtain equity financing by
selling common stock directly to the public.  Defines SCOR.
Identifies registration form to be utilized by SCOR.

THE SENATE                              S.B. NO.           742
TWENTIETH LEGISLATURE, 1999                                
STATE OF HAWAII                                            

                   A  BILL  FOR  AN  ACT



 1      SECTION 1.  The legislature finds that many small businesses
 2 in Hawaii with great potential are unable to obtain access to
 3 equity capital.  Small businesses, particularly new business
 4 start-ups, often find it difficult to secure venture capital for
 5 financing in their early stages.  Relatively few venture
 6 capitalists, for example, are willing to invest in early stage
 7 financing opportunities, and initial public offerings may not be
 8 right for most small companies.  The major sources of financing
 9 for average new small businesses are owners' savings, loans from
10 commercial banks, and funds from relatives and friends.
11      Many states, however, have allowed a new kind of equity
12 financing, the Small Corporate Offerings Registration (SCOR), a
13 uniform registration system that allows a company to raise up to
14 $1,000,000 by selling common stock directly to the public for at
15 least $5 per share.  The legislature finds that SCOR offerings,
16 which are registered with the State, cut through many of the
17 existing barriers that prevent small companies from obtaining
18 financing.  Offerings may be sold to anyone, including family
19 members, acquaintances, and other interested investors, in

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 1 amounts as little as $1,000, and shares may be easily resold.
 2      Existing state securities laws, however, may prevent the
 3 implementation of this uniform registration system.  The federal
 4 securities laws governing the private sale of securities are
 5 collectively known as "Regulation D".  The State's response to
 6 Regulation D is the Uniform Securities Act (Modified), contained
 7 in chapter 485, Hawaii Revised Statutes.  Pursuant to the Small
 8 Business Incentive Act of 1980, the North American Securities
 9 Administrators Association has developed "Form U-7", a question
10 and answer disclosure document for small companies that seek to
11 provide a complete listing of all disclosure issues that could
12 apply in any small company offering exempt from Securities and
13 Exchange Commission registration under Rule 504 of Regulation D.
14      The legislature finds that Form U-7 satisfies the prospectus
15 required for registration by qualification under the Uniform
16 Securities Act, provided that all of the qualifications in the
17 instructions for use of the form are fulfilled.  The legislature
18 further finds that allowing SCOR registration will assist
19 Hawaii's small businesses in obtaining needed financing and is
20 consistent with the Hawaii State Planning Act's economic priority
21 guidelines under section 226-103(a), Hawaii Revised Statutes, to
22 seek "a variety of means to increase the availability of

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                                     S.B. NO.           742

 1 investment capital for new and expanding enterprises" in order to
 2 "stimulate economic growth and encourage business expansion and
 3 development to provide needed jobs for Hawaii's people and
 4 achieve a stable and diversified economy".
 5      SECTION 2.  Chapter 485, Hawaii Revised Statutes, is amended
 6 by adding a new section to be appropriately designated and to
 7 read as follows:
 8      "485-     Prospectus; small corporate offerings
 9 registration form.  (a)  The prospectus required for registration
10 by qualification under section 485-10(b)(3) may be satisfied by
11 the Small Corporate Offerings Registration Form (Form U-7)
12 adopted by the North American Securities Administrators
13 Association if all of the qualifications in the instructions for
14 use of the form are fulfilled.
15      (b)  The commissioner shall adopt rules, orders, and forms
16 pursuant to chapter 91 to implement this section.
17      (c)  As used in this section, "small corporate offerings
18 registration" means a program that allows a small company to
19 obtain equity financing by selling common stock not to exceed
20 $1,000,000 to the public at a minimal cost per share."
21      SECTION 3.  New statutory material is underscored.
22      SECTION 4.  This Act shall take effect upon its approval.
24                           INTRODUCED BY:  _______________________

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