Economic Justice: What Can We Do for OUR Communities?

Loaded question right? Many of you may have read my first blog on this issue in August when my legislative office and my non-profit hosted an event on “Economic Justice: How To Use Our Dollars to Make Sense”. The issue was the almost $2 Trillion, with a “T”, in spending power in the black community and how to leverage that power to accelerate social justice. It’s my theory that leveraging the universal language of money can speed up social justice reform towards minorities in this country—all we have to do is come up with a plan and stick together to make it happen!

We had a lively discussion with panelists about the issues facing the black community with respect to economic parity and what preliminary steps we can take individually and as a community to address those issues. Over 60 individuals came to hear from the panel and there was a united conclusion to continue the conversation. We had a diversity of opinions, backgrounds, professional careers and visions for how to accomplish this enormous task. My non-profit, Minority Access to Capital, Inc., is committed to answering that call on the business side and I am committed as a policy maker to address those issues from a community and policy standpoint. Together we CAN and we WILL insight and inspire change but we need your help. Can we count on it?

If your answer is “Yes”, that time has arrived! I am pleased to announce that my office and non-profit are answering the call for ACTION ITEMS and a PLAN for how we can tackle the issue of economic justice in our communities. See below and join me at either or both events! *I will not be at the event on Nov. 17th as I have a conflicting event related to my legislative duties that will take me out of town.

AND……

On behalf of the Board of Directors of Minority Access to Capital, Inc., I hope to see some of you soon!

**************************************************************************I am Dar’shun Kendrick, Private Securities Attorney and Owner of Kendrick Law Practicehelping businesses raise capital the LEGAL way. We work with “for profit” companies seeking to raise $250,000 or more through private capital (including crowdfunding) that have a line item budgeted for legal services. We do NOT find investors or introduce companies to investors; that is the job of “broker-dealers” and we are prohibited under federal securities law from doing so.  I have 2 B.A.s from Oglethorpe University, a law degree from the University of Georgia and an M.B.A. from Kennesaw State University. View past and upcoming speaking engagements and request me to speak to your organization. I have been elected to the Georgia House of Representatives (East DeKalb/South Gwinnett) since 2011 and I serve on the committees of Juvenile Justice, Interstate Cooperation, Judiciary Non-Civil and as the ranking Democrat on the Small Business and Job Creation Committee.

You may be interested in my non-profit organization as well to EDUCATE and EMPOWER minorities called Minority Access to Capital, Inc. Please visit our website to learn about events and sign up for our enewsletter.

We are ONLY authorized to practice law in Georgia and therefore any legal advice in this blog only pertains to Georgia based businesses. Please visit us online to sign up for a time to discuss services or for our 1 hour consultation.

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How new and amended S.E.C. rules can that affect YOUR capital raising in Georgia?

The Securities and Exchange Commission (S.E.C.) did it! After months of reading articles about proposals and submitting my own public comments, the S.E.C. finally has adopted what I think are epic changes to Rules 147 and Rule 504. (See S.E.C. press release) Both of these changes are meant to provide more access to capital for entrepreneurs under the 2012 JOBS Act and the SEC’s Regulation CF.

The updates to Rule 147 will continue to be a safe harbour under Section 3(a)(11) of the Securities Act so that issuers that engage in securities offerings through intrastate offerings (“within a state only”) in reliance on state law exemptions will be protected. The new Rule 147A is similar to Rule 147 BUT….BUT it will allow offers to be accessible to out-of-state residents and for companies to be incorporated or organized out-of-state. THIS IS HUGE—no longer will issuing companies only be able able to raise money within the state they are incorporated if they are using an intrastate offering exemption.

DISCLAIMER (like any good attorney): The information contained below is a brief summary of the rules. As always, please consult a knowledgeable securities attorney before attempting any capital raising or dealing with investors. They will be able to provide you with more details about the rules. You are responsible for your own due diligence in this matter and this blog cannot be relied upon as specific legal advice.

Rule 147 Changes: No longer bound by borders!

New Rule 147A and updates to Rule 147 are meant to modernize the existing intrastate offering framework that permits companies to raise money from investors within their state without having to register and report on the federal level. As many of you know, Georgia was one of the first of 33 current states to adopt intrastate offerings which is called the Invest Georgia Exemption or “IGE”. (See blog and see rules) IGE has been successful in providing over 38 companies the opportunity to raise money from investors that reside inside of the state of Georgia, GroundFloor being one of the most famous examples.

Here are HIGHLIGHTS of the New Rule 147A and the updates to Rule 147:

  • The issuer must have its “principal place of business” in-state and satisfy at least one “doing business” requirement that would demonstrate the in-state nature of its business;
  • A new “reasonable belief” standard for issuers to rely on when determining the residence of a securities purchaser at the time of sale;
  • A requirement that issuers obtain a written representation from each purchaser regarding residency;
  • A limit on resales to persons residing within the state or territory of the offering for a period of six months from the date of the sale by the issuer to the purchaser;
  • An integration safe harbor that includes prior offers or sales of securities by the issuer made under another provision, as well as certain subsequent offers or sales of securities by the issuer occurring after the completion of the offering; and
  • Legend requirements to offerees and purchasers about the limits on resales.

In essence, what the new updates to rule 147 and new Rule 147A mean is that Georgia will be able to expand its existing intrastate offering program so that companies can raise capital from investor OUTSIDE of the State of Georgia! This is a step in the right direction towards expanding access to capital in a highly competitive fundraising market. Many times companies do not use intrastate offerings because of the limitation of investors to within a certain state—-especially when most investors officially reside in California, New York or Boston. This will open up more options for issuing companies to raise funds but also better competition amongst the states that do offer intrastate offerings. Note that the Georgia Secretary of State’s office will have to update the rules in order to take advantage of the S.E.C. rules but is a less onerous process than a legislative update (believe me…I know!)

Amendments to Rule 504 (which in effect repeal Rule 505): Say goodbye to $1MM.

The S.E.C. has 3 rules under Regulation D that exempts companies from S.E.C. registration: Rules 504, 505 and 506. Rule 504 exempts companies from registering with the S.E.C. for offers and sales of up to $1MM in a 12 month period (with some additional exemptions—see my disclaimer above). The change to Rule 504 raises the amount of capital that can be raised from $1MM to $5MM. The main distinction between a Rule 504 exemption and Rule 505 exemption was the amount of capital that could be raised. Under Rule 505, there were similar requirements under Rule 504 but a company could raise up to $5MM. Since the S.E.C. allows raising under Rule 504 up to to the same level and Rule 505, Rule 505 is unnecessary and useless and therefore is being repealed.

Other Information to Note:

I know that you are as EXCITED as I am about these new and updated rule changes—but remember that there is a “holding period” by which S.E.C. rules must be published in the Federal Register before the rules become effective so that the public has adequate notice. Updates to Rule 147 and new rule 147A will become effective 150 days after publication in the Federal Register and updates to Rule 504 will become effective 60 days after publication. Rule 505 will be repealed and become effective 180 days after publication in the Federal Register.

**************************************************************************

I am Dar’shun Kendrick, Private Securities Attorney and Owner of Kendrick Law Practicehelping businesses raise capital the LEGAL way. We work with “for profit” companies seeking to raise $250,000 or more through private capital (including crowdfunding) that have a line item budgeted for legal services. We do NOT find investors or introduce companies to investors; that is the job of “broker-dealers” and we are prohibited under federal securities law from doing so.  I have 2 B.A.s from Oglethorpe University, a law degree from the University of Georgia and an M.B.A. from Kennesaw State University. View past and upcoming speaking engagements and request me to speak to your organization. I have been elected to the Georgia House of Representatives (East DeKalb/South Gwinnett) since 2011 and I serve on the committees of Juvenile Justice, Interstate Cooperation, Judiciary Non-Civil and as the ranking Democrat on the Small Business and Job Creation Committee.

You may be interested in my non-profit organization as well to EDUCATE and EMPOWER minorities called Minority Access to Capital, Inc. Please visit our website to learn about events and sign up for our enewsletter.

We are ONLY authorized to practice law in Georgia and therefore any legal advice in this blog only pertains to Georgia based businesses. Please visit us online to sign up for a time to discuss services or for our 1 hour consultation.

Follow us on social media:  

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How new and amended S.E.C. rules can that affect YOUR capital raising in Georgia?

The Securities and Exchange Commission (S.E.C.) did it! After months of reading articles about proposals and submitting my own public comments, the S.E.C. finally has adopted what I think are epic changes to Rules 147 and Rule 504. (See S.E.C. press release) Both of these changes are meant to provide more access to capital for entrepreneurs under the 2012 JOBS Act and the SEC’s Regulation CF.

The updates to Rule 147 will continue to be a safe harbour under Section 3(a)(11) of the Securities Act so that issuers that engage in securities offerings through intrastate offerings (“within a state only”) in reliance on state law exemptions will be protected. The new Rule 147A is similar to Rule 147 BUT….BUT it will allow offers to be accessible to out-of-state residents and for companies to be incorporated or organized out-of-state. THIS IS HUGE—no longer will issuing companies only be able able to raise money within the state they are incorporated if they are using an intrastate offering exemption.

DISCLAIMER (like any good attorney): The information contained below is a brief summary of the rules. As always, please consult a knowledgeable securities attorney before attempting any capital raising or dealing with investors. They will be able to provide you with more details about the rules. You are responsible for your own due diligence in this matter and this blog cannot be relied upon as specific legal advice.

Rule 147 Changes: No longer bound by borders!

New Rule 147A and updates to Rule 147 are meant to modernize the existing intrastate offering framework that permits companies to raise money from investors within their state without having to register and report on the federal level. As many of you know, Georgia was one of the first of 33 current states to adopt intrastate offerings which is called the Invest Georgia Exemption or “IGE”. (See blog and see rules) IGE has been successful in providing over 38 companies the opportunity to raise money from investors that reside inside of the state of Georgia, GroundFloor being one of the most famous examples.

Here are HIGHLIGHTS of the New Rule 147A and the updates to Rule 147:

  • The issuer must have its “principal place of business” in-state and satisfy at least one “doing business” requirement that would demonstrate the in-state nature of its business;
  • A new “reasonable belief” standard for issuers to rely on when determining the residence of a securities purchaser at the time of sale;
  • A requirement that issuers obtain a written representation from each purchaser regarding residency;
  • A limit on resales to persons residing within the state or territory of the offering for a period of six months from the date of the sale by the issuer to the purchaser;
  • An integration safe harbor that includes prior offers or sales of securities by the issuer made under another provision, as well as certain subsequent offers or sales of securities by the issuer occurring after the completion of the offering; and
  • Legend requirements to offerees and purchasers about the limits on resales.

In essence, what the new updates to rule 147 and new Rule 147A mean is that Georgia will be able to expand its existing intrastate offering program so that companies can raise capital from investor OUTSIDE of the State of Georgia! This is a step in the right direction towards expanding access to capital in a highly competitive fundraising market. Many times companies do not use intrastate offerings because of the limitation of investors to within a certain state—-especially when most investors officially reside in California, New York or Boston. This will open up more options for issuing companies to raise funds but also better competition amongst the states that do offer intrastate offerings. Note that the Georgia Secretary of State’s office will have to update the rules in order to take advantage of the S.E.C. rules but is a less onerous process than a legislative update (believe me…I know!)

Amendments to Rule 504 (which in effect repeal Rule 505): Say goodbye to $1MM.

The S.E.C. has 3 rules under Regulation D that exempts companies from S.E.C. registration: Rules 504, 505 and 506. Rule 504 exempts companies from registering with the S.E.C. for offers and sales of up to $1MM in a 12 month period (with some additional exemptions—see my disclaimer above). The change to Rule 504 raises the amount of capital that can be raised from $1MM to $5MM. The main distinction between a Rule 504 exemption and Rule 505 exemption was the amount of capital that could be raised. Under Rule 505, there were similar requirements under Rule 504 but a company could raise up to $5MM. Since the S.E.C. allows raising under Rule 504 up to to the same level and Rule 505, Rule 505 is unnecessary and useless and therefore is being repealed.

Other Information to Note:

I know that you are as EXCITED as I am about these new and updated rule changes—but remember that there is a “holding period” by which S.E.C. rules must be published in the Federal Register before the rules become effective so that the public has adequate notice. Updates to Rule 147 and new rule 147A will become effective 150 days after publication in the Federal Register and updates to Rule 504 will become effective 60 days after publication. Rule 505 will be repealed and become effective 180 days after publication in the Federal Register.

**************************************************************************

I am Dar’shun Kendrick, Private Securities Attorney and Owner of Kendrick Law Practicehelping businesses raise capital the LEGAL way. We work with “for profit” companies seeking to raise $250,000 or more through private capital (including crowdfunding) that have a line item budgeted for legal services. We do NOT find investors or introduce companies to investors; that is the job of “broker-dealers” and we are prohibited under federal securities law from doing so.  I have 2 B.A.s from Oglethorpe University, a law degree from the University of Georgia and an M.B.A. from Kennesaw State University. View past and upcoming speaking engagements and request me to speak to your organization. I have been elected to the Georgia House of Representatives (East DeKalb/South Gwinnett) since 2011 and I serve on the committees of Juvenile Justice, Interstate Cooperation, Judiciary Non-Civil and as the ranking Democrat on the Small Business and Job Creation Committee.

You may be interested in my non-profit organization as well to EDUCATE and EMPOWER minorities called Minority Access to Capital, Inc. Please visit our website to learn about events and sign up for our enewsletter.

We are ONLY authorized to practice law in Georgia and therefore any legal advice in this blog only pertains to Georgia based businesses. Please visit us online to sign up for a time to discuss services or for our 1 hour consultation.

Follow us on social media:  

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Twitter

Facebook

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Filed under capital raising, private debt, private equity, securities

Private Equity Trends: Data makes the world go ’round.

hh…private equity. I call it “capital purgatory” since, in my experience working with capital raising clients, it’s easier to obtain private equity than venture capital but harder to obtain than an angel investment and therefore—-companies are in an unknown, in between stage between possibly getting enough capital to scale and grow their business and just enough investment from a wealth individual to continue bootstrapping their efforts for growth. Therefore, in my opinion, I secretly refer to private equity (PE) as “capital purgatory”.

As you probably know, private equity is a system by which a fund is managed by a general partner who use a variety of investment strategies (buy outs, mezzanine financing, venture capital, leverage buyouts (LBOs)) to invest in companies that in turn make money to pay out profits to limited partners, those being the investors into the fund. Generally the limited partners (LPs) like to see their investment return in 7-10 years. If you are a visual person like me, here is a handy chart for reference:

(Source: Wikipedia, last accessed 10/24/16)

Although I am but a humble lawyer, I will tell you the allure and fascination of analytical information for private equity astounds even my husband John Jackson, who is the numbers, analytical, “this is what this data means” person in our family. Data is vital to the world as we know it and particularly helpful in identifying trends, making investment decisions, and assessing any given situation. Consider these points about the U.S. private equity industry: (Credits: My favorite- Pitchbook, last accessed 10/24/16)

  • 2016 may see the LEAST amount of PE investment since 2006, (2009 as the exception/outlier of course) with only 2,477 deals totaling only $484 Billion raised. (Source: Pitchbook, page 5)
  • In 2016, buy-outs are down to the lowest since 2006 and platform creation is up. (Source: Id. at page 6)
  • Company valuations are on the rise as 2016 saw valuations in multiples of 5 of EBITDA [Earning Before Interest, Taxes, Depreciation and Amortization] (Source: Id. at page 7)
  • Median debt [of companies in PE portfolio] is down by almost 8 percentage points since 2010. (Source: Id.)
  • Deals over $1B make up the majority of deals in 2016. (Source: Id. at page 9) That’s a lot of unicorns—thanks Uber and Airbnb
  • IT (surprise, surprise) continued to obtain a majority of PE funds in 2016. (Source: Id.)
  • The overall value of funds dropped in Q3 of 2016 despite having a robust Q2. (Source: Id. at page 14)

And on…and on…..there was much data to be digested in the 20 pages of data. But the point is the world of PE is a fascinating world that, in my opinion, is partially data driven (what industries are trending? what has been their performance record?) and partially human psychology (who will win the U.S. elections? what effect may that have on my investments? do I “like” this company?). By taking a look at the past trends and, to some extent, projections, you can make your own assessment as an investor or a company which direction you should go.

 

*********************************************************************

I am Dar’shun Kendrick, Private Securities Attorney and Owner of Kendrick Law Practicehelping businesses raise capital the LEGAL way. We work with “for profit” companies seeking to raise $250,000 or more through private capital (including crowdfunding) that have a line item budgeted for legal services. We do NOT find investors or introduce companies to investors; that is the job of “broker-dealers” and we are prohibited under federal securities law from doing so.  I have 2 B.A.s from Oglethorpe University, a law degree from the University of Georgia and an M.B.A. from Kennesaw State University. View past and upcoming speaking engagements and request me to speak to your organization. I have been elected to the Georgia House of Representatives (East DeKalb/South Gwinnett) since 2011 and I serve on Juvenile Justice, Judiciary Non-Civil and as the ranking Democrat on the Small Business and Job Creation Committee.

You may be interested in my non-profit organization as well to EDUCATE and EMPOWER minorities: Minority Access to Capital, Inc.

We are ONLY authorized to practice law in Georgia and therefore any legal advice in this blog only pertains to Georgia based businesses. Please visit us online to sign up for a time to discuss services or for our 1 hour consultation.

Follow us on social media:  

LinkedIn Company Page

Twitter

Facebook

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Economic Justice: How to Use Our Dollars to Make Change (Sept. 8th, join us)

It’s been a little while since I wrote a blog post. Last time I wrote one, I was chairing an ad hoc committee made up of my collegues from the Georgia House of Representatives—House members from both the Economic Development committee and Small Business and Job Creation committee where I serve as the ranking Democrat. The purpose of the committee

was to hold hearings in metro Atlanta to discuss ways to improve our investment environment in Georgia to make it easier for investors, individuals and institutional, to invest in Georgia based businesses and for businesses to receive private investment funds. (Report from Private Investment Policy Focus Group, June 2016)

Now I want to turn to a more specific topic—economic justice for minorities, particularly African Americans. You see, I happen to be a African American woman that works in the capital markets industry, practicing securities law (which is a fancy word for “I help companies that want to raise millions of dollars to start or grow their business). I have seen where the almost $1.2 Trillion in private capital funds over the last 10 years has went—and you’ll be shocked to know 95% of it did NOT go to minority owned companies. As a matter of fact, minority firms are lagging behind in a few areas due to capital disparities. (Source)

It has been reported that black spending power for 2016 will reach $1.2 Trillion and reach $1.4 Trillion by 2020, a 275% INCREASE from black spending power since 1990. (Source) But here is the question:  What are we going to do with all this black spending “power” if we don’t use it? Just look at the number of U.S. minority owned firms and the economic contributions we have made to this nation.

Over the past few years, most of the politicians, speaking heads and activists have focused on social justice given the unarmed black man shootings that have occurred throughout the country. And rightly so! But I implore and ask anyone reading this post to stop and consider my theory: I believe that 1) We cannot talk about social justice without talking about economic justice at the same time and 2) the path to social justice, I believe, will come faster and smoother if we focus on economic justice issues. No one has to agree with me—I am just telling you my thoughts. And the reason for my theory is something that I have learned over the 8 years I have been practicing corporate law, meeting with those who have millionaire dollar net worths or access to millions, attending events where capital is being distributed, patronizing black businesses and talking with blacks with high net worths and disposable income and serving almost 7 years as a member of the Georgia legislature: Money is the universal language of mankind. A black man’s currency has the same worth as a white man’s. So if we are to catch the attention of those that are violating our social and civil rights—-speak with the almighty dollar and watch who listens, how fast they listen and the call for change. Again, my theory. No one has to agree.

That being said, let’s start to have the discussion around how to empower and support black businesses, how to communicate information among our community without fear of some other person of color of getting ahead of us and learn how to create generational wealth to leave to our children and families. I invite you all to participate in this discussion with me at Emory on Sept. 8th along with a dynamic moderator and great group of panelists (We will even have a reception before hand for networking.)

See panelist bios

RSVP HERE (Limited spaces!)

I hope you can join me for a GREAT discussion.

*******************************************************************************************

I am Dar’shun Kendrick, Private Securities Attorney and Owner of Kendrick Law Practicehelping businesses raise capital the LEGAL way. We work with “for profit” companies seeking to raise $250,000 or more through private capital (including crowdfunding) that have a line item budgeted for legal services. We do NOT find investors or introduce companies to investors; that is the job of “broker-dealers” and we are prohibited under federal securities law from doing so.  I have 2 B.A.s from Oglethorpe University, a law degree from the University of Georgia and an M.B.A. from Kennesaw State University. View past and upcoming speaking engagements and request me to speak to your organization. I have been elected to the Georgia House of Representatives (East DeKalb/South Gwinnett) since 2011 and I serve on Juvenile Justice, Judiciary Non-Civil and as the ranking Democrat on the Small Business and Job Creation Committee.

You may be interested in my non-profit organization as well to EDUCATE and EMPOWER minorities:

We are ONLY authorized to practice law in Georgia and therefore any legal advice in this blog only pertains to Georgia based businesses. Please visit us online to sign up for a time to discuss services or for our 1 hour consultation.

Follow us on social media:  

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Twitter
Facebook
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Filed under policy, private equity

Investment Policy in Georgia: Hear what these industry leaders think.

On June 28th, I held my public meeting under the Gold Dome with a focus group on investment policy in Georgia. We had a number of leaders in the industry come and speak about a variety of capital formation and generation issues. Take a look at the powerpoint presentation below complete with links and documents for your review.

A special shout out to those that presented and were on the panel:

  • Charlie Jarrett and Noula Zaharis (Georgia Secretary of State’s office, Securities Division)
  • Tino Mantella  (President of the Technology Association of Georgia)
  • State of Atlanta StartUp Ecosystem Report , Adam Harrell (Executive Director of StartUp Atlanta)
  • Association for Corporate Growth,  Melanie Brandt (Executive Director of ACG Atlanta, Inc.)
  • Allyson Eman (Executive Director with Venture Atlanta)

Barry Etra, Chair

RAISE Forum

  • Barry Etra worked in Sales and Marketing, Operations, and General Management for manufacturing organizations in the Northeast. In 2014 he founded the RAISE Forum in partnership with Emory; they help early-stage companies in the Southeast get senior funding from the Southeast, which helps keep companies here. He has a BA and an MBA from Columbia University.

Dharma Jackson

Leaf Life Learning

  • Dharma “DVL” Jackson is born and raised in metro Atlanta, GA. She has earned her degree in Criminal Justice Georgia Perimeter College. Ms. Jackson is also a Grammy member recording artist in the local Atlanta Chapter and has over 16 years in the film and music entertainment industry.

Terrance Ashanta-Barker

QuarryFish Venture Partners

  • Terrance Ashanta-Barker is Co-Founder and Managing Director of QuarryFish Venture Partners, LLC (“QuarryFish”). Mr. Ashanta-Barker is responsible for all of the firm’s operational activities related to the execution and management of its investments in its current and growing portfolio of companies. Ashanta-Barker co-founded a corporate law boutique, the Ashanta-Barker & Johnson Law Group, LLC.

 

Dan King 

Atlanta Technology Angels

  • Dan King is an attorney who has practiced law since 1980, most of it as a partner in the Atlanta and NY offices of King & Spalding. He is active in the Atlanta angel investor community, as the organizer of the Gwinnett Angels and in serving on the board of the Atlanta Technology Angels. He has made direct investments in over 10 start-up ventures.

Erik Nelson

Mountain Share Transfer

  • Nelson has been active in the securities industry for 27 years, starting out as a stock broker following graduation from college in 1989.  In 1995, he launched Coral Capital Partners, Inc., an advisory services firm that provides services to participants in the capital markets. In late 2012, he acquired Mountain Share Transfer, whose clients range from small private companies to NASDAQ listed firms

 

Dana Clare Redden

Solar Concierge

  • Dana Clare Redden is the CEO of Solar Concierge, which she started in 2012 with the goal of educating and marketing to the now cost-competitive solar energy market. After seeing the light while helping people utilize solar energy in San Diego, Riverside, and Orange County, California in 2009, she sought to bring solar to the Southeast with a business model that would empower the client through knowledge, industry connections, and multiple funding sources. Dana is currently on the Board of Directors for the Georgia Solar Energy Association, where she serves as Education Committee chair, is a LEED Accredited Professional, and is a member of the Buckhead Rotary Club.

NOTE: If you are interested in being on my email list for events and other initiatives in the space of private investments, please email me at dkendrick@kendrickforgeorgia.com, Subject: Private Investment Project.

***************************************************************************

I am Dar’shun Kendrick, Private Securities Attorney and Owner of Kendrick Law Practicehelping businesses raise capital the LEGAL way. We work with “for profit” companies seeking to raise $250,000 or more through private capital (including crowdfunding) that have a line item budgeted for legal services. We do NOT find investors or introduce companies to investors; that is the job of “broker-dealers” and we are prohibited under federal securities law from doing so.  I have 2 B.A.s from Oglethorpe University, a law degree from the University of Georgia and an M.B.A. from Kennesaw State University. View past and upcoming speaking engagements and request me to speak to your organization. I have been elected to the Georgia House of Representatives (East DeKalb/South Gwinnett) since 2011 and I serve on Juvenile Justice, Judiciary Non-Civil and as the ranking Democrat on the Small Business and Job Creation Committee.

You may be interested in my non-profit organization as well to EDUCATE and EMPOWER minorities:

General Meeting Notification

We are ONLY authorized to practice law in Georgia and therefore any legal advice in this blog only pertains to Georgia based businesses. Please visit us online to sign up for a time to discuss services or for our 1 hour consultation.

Follow us on social media:  

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Twitter
Facebook
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Filed under private equity

8 Things You May Not Know About the New Federal Crowdfunding Rules But Should Know

As many of you know, the S.E.C. adopted rules on October 30, 2015 under Title III of the 2012 JOBS Act (“Jump Start Our Businesses Act”) related to crowdfunding that allows issuing companies to raise capital from a crowd of investors based on their income and net worth. (Source: S.E.C. Press Release)

Usually when experts and others discuss these new federal crowdfunding rules, formally known as Regulation Crowdfunding, there is an emphasis on the great opportunity that is there for issuing companies. However, Regulation Crowdfunding is (1) new and therefore many unintended consequences unknown and (2) riddled with regulatory compliance requirements that only a knowledgeable securities attorney should undertake.  (See my previous blogs on this issue)

That being said, here is a non-exclusive list of the top 8 things I think that you, as an issuing company, SHOULD know about the new federal crowdfunding rules but may not know:

  1. Beware of the money you raised 12 months prior to your Regulation Crowdfunding raise. Warning! Math is involved! And if you are anything like me, you’d rather to leave the math to other people. But it’s important to note that non-crowdfunding offerings are NOT counted towards the $1MM maximum aggregate amount that issuers can raise but previous Regulation Crowdfunding offerings are counted towards that $1MM if you raise it within the preceding 12 months. This is an IMPORTANT distinction! Let’s take a look at an example or two: If a company raises $500,000 under a Regulation D exemption in the 12 months prior to raising capital under Regulation Crowdfunding, that $500,000 is not counted towards the maximum amount of $1MM that can be raised. However, if a company raises the same $500,000 within 12 months prior to a Regulation Crowdfunding raise, the issuing company can only raise $500,000 MAX in the 2nd Regulation Crowdfunding raise. Now in practice, since Regulation Crowdfunding is new, there is no issuing company that should run afoul of this provision for now. But for future reference, beware! (Source: Regulation Crowdfunding: A Small Entity Compliance Guide for Issuers, published May 13, 2016, 2(a))
  2. The investors’ income AND net worth must be considered together. I’d like to take this time to apologize for the subsequent confusing rule; it’s almost as if the S.E.C. wants to complicate things. That being said, the rule is that if EITHER an investor’s annual income OR net worth is less than $100,000, then the investor’s investment limit is the GREATER of: $2,000 or 5% of the lesser of the investor’s annual income or net worth. Let’s say you have an investor that has an annual income of $97,000 but a net worth of $5 MM. They can only invest the greater of $2,000 or 5% of the lesser of the investor’s annual income of net worth. BOTH the net worth of the investor AND the annual income must be over $100,000 in order to qualify for the higher investment limits according to the rule. It’s not enough that either one is over $100,000. That’s a tricky distinction and seems an awkward distinction at times, but its an important distinction. (Source: Regulation Crowdfunding: A Small Entity Compliance Guide for Issuers, published May 13, 2016, 2(b))
  3. You need a specific business plan to qualify to use Regulation Crowdfunding and I have absolutely no idea what that looks like. The S.E.C. has not given guidance about what this business plan would need to include in order to be compliant with Regulation Crowdfunding. I imagine the reason that the S.E.C. placed this as a requirement is to make sure at least some level of thought has went into the business seeking to use Regulation Crowdfunding and so that investors would have some general information about the business in addition to the financial statements that are required to be provided to investors under Regulation Crowdfunding. It’s generally a good idea to have a business plan anyway whether its required under Regulation Crowdfunding or note. So get to writing! (Source: Regulation Crowdfunding: A Small Entity Compliance Guide for Issuers, published May 13, 2016, 2 (d))
  4. Progress reports are required beyond the Initial Offering Statement Disclosure on form C. That’s right—after you have file form C (Initial Offering Statement) or form C/A (amendment to initial offering statement), there are more forms to file. It’s almost like grade school all over again. An issuer must provide an update on its progress toward meeting the target offering within five (5) business days after reaching 50% and 100% of its target offering on form C-U. The issuer only has to provide the final form C-U if the intermediary provides frequent updates on its platform. I am obviously biased but this is yet another reason why you should give the burden of keeping up with these little details to a knowledgeable team, including a knowledgeable securities attorney.  (Source: Regulation Crowdfunding: A Small Entity Compliance Guide for Issuers, published May 13, 2016, 3(d))
  5. The S.E.C. has a hard time of letting go because there are annual reports required even AFTER the raise has been completed. That’s right. Even after an issuer has finished their raise, Regulation Crowdfunding requires that the issuer provide an annual report on Form C-AR no later than 120 days after the end of its fiscal year….each year. Now, there are 5 triggering events in which issuers are no longer required to do annual reporting; in which case they are to file a notice on Form C-TR terminating their reporting requirements. I’d advise marking calendars and giving this task to the head compliance officer. Remember that non-compliance with Regulation Crowdfunding or a violation can prevent an issuer from using it in the future so issuers want to make sure they are 100% compliant. (Source: Regulation Crowdfunding: A Small Entity Compliance Guide for Issuers, published May 13, 2016, 3(e))
  6. You can’t go posting your offering terms on your social media page…and other things you cannot do online. Before you think that you can post your offering terms on your Facebook or LinkedIn page, get that vision out of your mind. An issuer cannot advertise terms of the Regulation Crowdfunding offering except for a notice that directs potential investors to the crowdfunding portal, the one portal that is required to be S.E.C. registered and FINRA certified. Once on the intermediary platform, the issuer is then allowed to communicate with investors and potential investors about the terms of the offering. I know it’s very tempting for issuers to get very excited and want to blast their offering out to the world, especially millennials like myself who live on social media, but seek legal counsel and craft a message that is intriguing but doesn’t violate the rules of Regulation Crowdfunding. (Source: Regulation Crowdfunding: A Small Entity Compliance Guide for Issuers, published May 13, 2016, 4)
  7. Count your investors! That’s right—count them individually. Section 12(g) is the Exchange Act requires issuers with total assets or more than $10MM ($25MM if you are using Regulation Crowdfunding) AND a class of securities with more than 2,000 record holders or 500 who are not accredited to register with the S.E.C. (Code word for expensive and time consuming) There are 3 ways to PREVENT your investors from being counted towards those magic numbers if you are using a Regulation Crowdfunding exemption to raise capital. Make sure you meet those requirements because I ASSURE YOU—you don’t want to trigger registration requirements. You can shift that burden to your intermediary crowdfunding portal but as you can see from No. 8 below, you will need to do your due diligence to make sure the crowdfunding portal is doing what it needs to do to be compliant as well. (Source: Regulation Crowdfunding: A Small Entity Compliance Guide for Issuers, published May 13, 2016, 6)
  8. Beware of bad people—and that includes a lot of people. One of the ways to get disqualified from using Regulation Crowdfunding is a “bad actor” disqualification from a “covered person” that experienced a “disqualifying event.” (I put those in all quotes because they all have very specific definitions.) You’d be surprised who is a “covered person” who can disqualify a company totally from using Regulation Crowdfunding. For example, the issuer including its predecessors and affiliated issuers, directors, officers and general partners, promoters, persons compensated for soliciting investors, and beneficial owners of 20% or more to name a few. So be careful who you invite on your team—one wrong move and they could disqualify you from using Regulation Crowdfunding now or in the future. The good thing is that no bad acts will be included in the look back period prior to May 16, 2016 and there are safe haven provisions. But don’t get sloppy—still do your homework on potential team members. (Source: Regulation Crowdfunding: A Small Entity Compliance Guide for Issuers, published May 13, 2016, 7)

As always, I encourage you seek knowledgeable counsel BEFORE you make the decision to do ANY private placement offering, but especially Regulation Crowdfunding since its a new and unchartered territory of securities law. Remember that the world of securities law is highly regulated and rule specific— it’s not an area of law to “play lawyer” in even for other lawyers who don’t have knowledge about this area.

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I am Dar’shun Kendrick, Private Securities Attorney and Owner of Kendrick Law Practicehelping businesses raise capital the LEGAL way. We work with “for profit” companies seeking to raise $250,000 or more through private capital (including crowdfunding) that have a line item budgeted for legal services.We do NOT find investors or introduce companies to investors; that is the job of “broker-dealers” and we are prohibited under federal securities law from doing so.  I have 2 B.A.s from Oglethorpe University, a law degree from the University of Georgia and an M.B.A. from Kennesaw State University. View past and upcoming speaking engagements and request me to speak to your organization.

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