Securities; SCOR system

Enables small businesses to obtain increased access to growth
capital by allowing a new form of equity financing through the
small corporate offering registration system.  (SB1071 HD1)

THE SENATE                              S.B. NO.           S.D. 1
TWENTIETH LEGISLATURE, 1999                                H.D. 1
STATE OF HAWAII                                            

                   A  BILL  FOR  AN  ACT



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

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

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                                                        H.D. 1

 1 growth and encourage business expansion and development to
 2 provide needed jobs for Hawaii's people and achieve a stable and
 3 diversified economy."
 4      SECTION 2.  Chapter 485, Hawaii Revised Statutes, is amended
 5 by adding a new section to be appropriately designated and to
 6 read as follows:
 7      "485-    Prospectus; small corporate offerings registration
 8 form.  (a)  The prospectus required for registration by
 9 qualification under section 485-10(b)(3) may be satisfied by the
10 Small Corporate Offerings Registration Form (Form U-7) adopted by
11 the North American Securities Administrators Association if all
12 of the qualifications in the instructions for use of the form are
13 fulfilled.
14      (b)  The commissioner shall adopt rules pursuant to chapter
15 91 to implement this section."
16      SECTION 3.  New statutory material is underscored.
17      SECTION 4.  This Act shall take effect upon its approval.