Media Center
Choose From Date
Choose To Date

Contact

Marketing and Business Development Director
D: 423.321.0313
Legal Updates

FINALLY… SEC Finalizes Crowdfunding Rules

11.12.2015

FINALLY... SEC Finalizes Crowdfunding Rules
On October 30, 2015, the U.S. Securities Exchange Commission ("SEC") adopted final rules which will allow companies to offer and sell equity and securities through a crowdfunding exemption in the Jumpstart Our Businesses Act ("JOBS Act"). These rules will likely become effective in May 2016.

The crowdfunding exemption allows eligible companies to raise capital online by selling equity and other securities. Until these rules go into effect, investors need to have an annual income exceeding $200,000 or a net worth of least $1 million to invest in the equity or securities of companies.

The Following Rules Apply to an Offering Company
o   May raise up to $1 million through the crowdfunding exemption in any 12-month period.

o   Companies engaging in crowdfunding offerings will be required to file certain information and disclosures with the SEC and provide such information and disclosures to investors.

o   Required information and disclosures include:

o   information about officers, directors and certain owners of the company;

o   a description of the company's business and the intended use of proceeds to be realized from the offering

o   information about the company's financial condition;

o   the price of the offering, the target offering amount, and the deadline to reach the target offering amount;

o   information about certain related-party transactions;

o   audited or reviewed financial statements of the company; and

o   the company's recent tax returns.

The Following Rules Apply to Crowdfunding Investors
o   If annual income and net worth is less than $100,000: may invest the greater of (i) $2,000, or (ii) 5% of the investor's annual income or net worth in a single offering.

o   If annual income or net worth is equal to or greater than $100,000: may invest the greater of 10% of the investor's annual income or net worth in a single offering.

o   The maximum amount of investment for any investor in any 12-month period is $100,000.

Disqualified Companies
o   Certain companies are not eligible to participate under the crowdfunding exemption, including foreign companies, public companies that already report to the SEC, and companies with no specific business plan.

Companies Must Use Registered Portals
o   Crowdfunding must take place exclusively online through an SEC-registered intermediary, either a broker-dealer or a funding portal.

Transfer Restrictions Apply to Securities Purchased Via Crowdfunding
o   As a general matter, any security purchased through crowdfunding may not be resold for one year.

o   There are exceptions to this rule, however, including transfers (i) to family members, (ii) to accredited investors or (iii) at a SEC-registered public offering.