On Oct. 30th, 2015, the S.E.C. (Securities & Exchange Commission) FINALLY adopted final rules of crowdfunding. I say FINALLY with emphasis because the S.E.C. has been tasked with finalizing these rules ever since the JOBS Act Section III passed in April of 2012. These rules will permit companies to offer and sell securities through #crowdfunding. (To view the full press release from the S.E.C.,click here) Crowdfunding is a way by which companies can use the internet “crowd” to raise funds. These final rules permit individuals to invest in securities based crowdfunding. These crowdfunding transactions are subject to certain investment limits.
Disclaimer: We are NOT responsible for your reliance on this blog. Please review the full rules and related material before you raise capital via crowdfunding or otherwise. Sources: 1- The full S.E.C. press release. 2- Thefinal crowdfunding rules in their entirety.
The rules also do the following to protect the public:
- Limit the amount of money a company can raise using the crowdfunding exemption
- Impose disclosure requirements on issuers for certain information
- Create a regulatory framework for broker-dealers and
- Dictate the manner and mode of funding portals for facilitation.
NOTE: The new crowdfunding rules and forms will not be effective until March 16, 2016. However, forms enabling funding portals will be effective Jan. 29, 2016.The Commission also proposed intrastate offering amendments.They also proposed amendments to Rule 504.Neither of these proposals will be discussed in this chat.
TOPIC I: GENERAL OVERVIEW OF RULES
Generally speaking, the recommended rules would: 1- Permit a company to raise a max. of $1M in 12 months.2- Permit individual investors to invest a certain amount. The amount is based on if their annual income or net worth is under $100k. 3- During the 12 month period, the max sold to any individual investor may not exceed $100k. Visit our slideshare account for a more detailed explanation.
TOPIC II: INELIGIBLE COMPANIES
Certain companies would not be eligible to use the exemption under the Rules. This includes non-U.S. companies, Exchange Act reporting companies,certain investment companies, companies that have failed to report during 2 years prior and companies with no specific business plan. Disclaimer: Review the full rulesfor more detailed explanations.
TOPIC III: RESTRICTION ON RESALE
There is still a restriction on sale for one year.TOPIC IV: INTERMEDIARY NEEDED TO RAISE FUNDS. In addition, all transactions relying on the new rules would need an intermediary. The intermediary could be a broker-dealer or funding portal. The funding portal would have to register with the S.E.C. and the funding portal would also need to be a member of FINRA.
A company would be required to only use 1 platform at a time. There are responsibilities on the funding portal as well.
TOPIC V: DISCLOSURE BY COMPANIES
Companies would need to file certain info with the S.E.C. and companies would also need to provide the following info to investors:
- The price of to the public of the securities or method;
- A discussion of the company’s financial condition;
- Financial statements of the company with review or audit or tax returns;
- A description of the business and the use of proceeds; and
- Certain related-party transactions.
If you have a comprehensive business plan, this information would be covered.
DISCLAIMERS & OTHER INFO
- To view the full S.E.C. press release on this topic: View here.
- To view the full final rules in their entirety: View here.
Remember, we are NOT responsible for your reliance on this short chat. Please review the full rules and related material and seek the advice of competent legal counsel before you raise capital via crowdfunding or otherwise.
Well there you have a general overview of the new Regulation Crowdfunding rules that were FINALLY adopted by the S.E.C.. The rules don’t become effective until March so there is still time to read through the rules and obtain legal counsel so you can start raising funds for your company if you qualify.
I am Dar’shun Kendrick, Private Securities Attorney and Owner of Kendrick Law Practice, helping businesses raise capital the LEGAL way. We work with “for profit” companies seeking to raise $250,000 or more through private securities (equity and/or debt) 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. NOTE: I will be discussing this subject in detail during my monthly Twitter chats on December 14th at 7 pm on Twitter. Visit the News & Events section of my website for more information.
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 famous 10 point Business Legal Consultation for 1 hour.
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