LINCOLN — The head of the state banking department said he's tired of being the “black hat” when small towns try to save a main street cafe or clothing store by selling stock to local investors.
Such sales, while well-intended, often run afoul of the State Securities Act, according to John Munn, director of the Nebraska Department of Banking and Finance.
The Legislature advanced a bill Tuesday intended to make it easier for those small towns, as well as entrepreneurs, to start or save a business.
Towns must now comply with the State Securities Act, which requires disclosure statements, legal representation and other paperwork. Some towns have had to give money back to investors and start over because they were unaware they had to comply with the act.
“It's a situation that's happened more than once,” said Munn, who has nearly nine years with the department.
Legislative Bill 205, which won first-round approval on a 26-0 vote, would exempt business ventures of less than $250,000 from the act. Ventures could sell stock in their enterprise under the bill, introduced by State Sen. Paul Schumacher of Columbus.
Schumacher said entrepreneurs with a good idea must now put all their assets on the line to raise money to develop the idea. Under LB 205, the financial risks would shift to investors, who would have to prove that they had been misled in order to recover funds from the entrepreneur.
Munn said Ravenna and Cambridge were among cities that ran into problems with the State Securities Act while trying to save a local business through community ownership.
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