Companies can now offer and sell securities through crowdfunding. The Securities and Exchange Commission (SEC) recently gave the green light under Title III of the Jobs Act. Companies interested in offering and selling securities through crowdfunding should discuss with a qualified business lawyer in Los Angeles, who can explain the new SEC rules regarding crowdfunding.
What is crowdfunding?
Crowdfunding is a new and growing method to fund business projects. Crowdfunding uses easily accessible outlets, such as the internet, social media and crowdfunding websites (Kickstarter, GoFundMe, Indigogo) that allow investors and entrepreneurs to meet. Crowdfunding is becoming more popular and is increasing entrepreneurship that provides an opportunity for startups and entrepreneurs to fund their projects faster.
What Are the SEC Recommended Rules and Provisions?
There is a lot of interest in the business arena for crowdfunding. The new SEC rules and provisions of crowdfunding provide smaller firms with more ways to obtain capital, and they give investors the protection they want. According to the SEC website, the recommended rules and provisions allow the following:
“The recommended rules would, among other things, enable individuals to purchase securities in equity crowdfunding offerings subject to certain limits, require companies to disclose certain information about their business and securities offering, and create a regulatory framework for the intermediaries facilitating crowdfunding transactions. More specifically, the recommended rules would:
Permit a company to raise a maximum aggregate amount of $1 million through crowdfunding offerings in a 12-month period;
Permit individual investors, over a 12-month period, to invest in the aggregate across all equity crowdfunding offerings up to:
- If either their annual income or net worth is less than $100,000, than the greater of:
- $2,000 or 5 percent of the lesser of their annual income or net worth.
- If both their annual income and net worth are equal to or more than $100,000, 10 percent of the lesser of their annual income or net worth; and
During the 12-month period, the aggregate amount of securities sold to an investor through all crowdfunding offerings may not exceed $100,000.
Under the recommended rules, certain companies would not be eligible to use the exemption. Ineligible companies would include:
- Non-U.S. companies,
- Exchange Act reporting companies,
- Certain investment companies,
- Companies that are subject to disqualification under Regulation Crowdfunding,
- Companies that have failed to comply with the annual reporting requirements under Regulation Crowdfunding during the two years immediately preceding the filing of the offering statement, and companies that have no specific business plan or have indicated that their business plan is to engage in a merger or acquisition with an unidentified company or companies.”
Businesses that utilize the recommended rules to conduct an equity crowdfunding offer are required to file certain information with the SEC. Companies must provide this information to investors and the intermediary facilitating the offering. It is in your best interest to speak with an experienced business lawyer in Los Angeles to learn how to file this information and better understand offering and selling securities through crowdfunding.