The JOBS Act was passed in April 2012 and in addition to General Solicitation, the JOBS Act paved the way for the Crowdfunding exemption. Crowdfunding is best described as the process by which capital is raised for a project, venture, or enterprise through the pooling of numerous and relatively small financial contributions or investments from the public, usually via the internet. While the final rules have yet to be released by the SEC, here is an overview of the basics of Crowdfunding under the proposed rules:
Crowdfunding offerings are exempt from registration with the SEC only if:
- Not more than $1 Million of securities are sold over a 12 month period
- The total sold to any investor is capped at
- For investors with a net worth or annual income LESS THAN $100,000: the lesser of $2,000 or 5% of the investors’ net worth or annual income;
- For investors with a net worth or annual income GREATER THAN $100,000:the lesser of $10,000 or 10% of the investors annual income or net worth.
- The issuer must be a private company- not publicly traded
- The securities may not be sold or transferred for one year, except to family members or accredited investors.
- Securities must be sold through an intermediary registered with the SEC as a broker-dealer or funding portal.
- Provide the SEC. investors and intermediaries basic information about the issuer and offering
- Provide the SEC, investors and intermediaries with income tax returns and financial statements
- Not advertise the terms of the offering except through notices that direct investor to the intermediary
- File annual reports with the SEC covering results of operations and financial statements
Again, while the rules are not final, there are sites out there that appear to be offering Crowdfunding-like services. However, these sites are not Crowdfudning as anticipated by the JOBS Act because they are generally selling a good or product for a donation or small fee.
But if you are a small business with a product or service to provide, while the SEC is ironing out the details of the Crowdfunding rules, check out the following sites:
Author: Jennifer Trowbridge, Stoecklein Law Group, LLP