May 16th, 2016 It Begins: Federal Crowdfunding Rules Change the Capital Formation Conversation

In many ways this blog is a recap of previous blog I wrote on the new federal crowdfunding rules (also known as “regulation crowdfunding”) that will become effective on May 16th of this year. (I am so excited that I am counting down on my social media posts!) But before I go further, I would not be a good lawyer unless I gave a disclaimer or two so here it goes. 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- The final crowdfunding rules in their entirety.)

Alright, now that that is done, let’s continue. To understand why I am so excited you have to realize the process and length of time it took to get to this place on May 16th. The JOBS Act was passed and signed into law in April of 2012 with the requirement that rules be promulgated by the Securities & Exchange Commission (“S.E.C.”) in the 6 months after the bill was passed. The S.E.C. didn’t finalize the rules until October 30th, 2015, over 3 years AFTER the law mandated the rules be finalized.  I can only predict the hundreds of thousands of businesses have been waiting for these rules to be finalized and then become effective (Fun fact: Once S.E.C. rules are finalized and published in the Federal Register, they take 6 months to become effective.)

In fact, many states, like Georgia, grew tired of waiting on the finalized rules and therefore came up with their own intrastate crowdfunding exemptions likeGeorgia’s Invest Georgia Exemption or “IGE”. However, there are limitations to intrastate crowdfunding such as only being able to sell to resident investors within each respective state and most states have a raise cap of $1MM-$5MM. (See comparison chart)

So these final federal rules are important to expand the pool of investors throughout the United States by which companies can raise capital. The federal crowdfunding rules now permit individuals to invest in equity based crowdfunding subject to certain investment limits based on income or net worth.

Before you through up a RED FLAG for the potential for investor fraud, it’s notables that the rules also do the following to protect the investing public (so this is not a “free for all” regulation):

  1.  Limit the amount of money a company can raise using the crowdfunding exemption;
  2. Impose disclosure requirements on issuers for certain information;
  3. Create a regulatory framework for broker-dealers and;
  4. Limit the amount of money an investor can invest based on income or their networth; and
  5. Dictate the manner and mode of funding portals for facilitation.

Now I am about to give you a GENERAL overview of equity based federal crowdfunding. Please remember my lawyer disclaimer I gave at the beginning of this blog; there are many, many details that you will need to consult knowledgeable counsel about before starting a campaign fundraising campaign under these new rules.


Generally speaking, the federal crowdfunding rules:

  1. Permit a company to raise a max. of $1M in 12 months;
  2. Permit individual investors to invest a certain amount based on annual income OR networth;
  3. Permit during a 12 month period, the max sold to any individual investor may not exceed $100k; and
  4. Permit an issuing company to raise money through general solicitation that must be conducted through a crowdfunding portal registered with the S.E.C.

(Source: Visit our slideshare account for a more detailed explanation.)


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 rules for more detailed explanations.)


There is still a restriction on sale for one year.


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 (Financial Industry Regulatory Authority).

A company would be required to only use 1 platform at a time. There are responsibilities on the funding portal as well.


Companies would need to file certain info with the S.E.C. and companies would also need to provide the following info to investors:

  1. The price of to the public of the securities or method;
  2. A discussion of the company’s financial condition;
  3. Financial statements of the company with review or audit or tax returns;
  4. A description of the business and the use of proceeds; and
  5. Certain related-party transactions.

If you have a comprehensive business plan, this information would be covered.


  • 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.
  • Please contact us for a services consultation to see how we can help you with your crowdfunding campaign.


Hopefully this blog has given you a general overview of what to expect from issuing companies on or after May 16th when the rules become effective and crowdfunding portals can actually start helping companies raise money under these new rules. The final rules are several hundred pages long so—-always seek knowledgeable legal counsel to help you navigate the details.

OR, if you are reading this blog before May 5th, join me for an event and learn even more about intrastate crowdfunding and federal regulation crowdfunding:

Sign up HERE and join me! Happy Crowdfunding!


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.

NEW SERVICE OFFERING: Legal Opinions! You have an issue, we have an answer. For more information, click HERE for a sample legal opinion memo.

You may be interested in my non-profit organization as well to EDUCATE and EMPOWER minorities: (Connect with us on Meet Up for upcoming meetings)

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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