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U.S. Securities Update: Regulation Crowdfunding - the SEC adopts Final Rules for U.S. companies
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On October 30, 2015, the U.S. Securities and Exchange Commission (the “SECâ€) adopted final rules under Title III of the Jumpstart Our Business Startups Act (the “JOBS Actâ€) permitting individuals to invest in U.S. companies via securities-based crowdfunding pursuant to Section 4(a)(6) of the U.S. Securities Act of 1933, as amended (the “Securities Actâ€) (“Regulation Crowdfundingâ€). The final rules and forms are effective 180 days after they are published in the Federal Register (i.e., approximately May 2016). The forms enabling internet funding portals to register with the SEC will be effective January 29, 2016. Regulation Crowdfunding is not available to non-U.S. companies.
Regulation Crowdfunding subjects individuals to investment limits, limits the amount of money an issuer can raise pursuant to the exemption, imposes issuer disclosure requirements and creates a regulatory framework for the broker-dealers and internet funding portals that facilitate crowdfunding.
Background
Title III of the JOBS Act, enacted on April 5, 2012, created a federal exemption from the requirement that securities offerings be registered under U.S. securities laws. In the Regulation Crowdfunding implementing release, SEC Chair Mary Jo White stated “there is a great deal of enthusiasm in the marketplace for crowdfunding, and I believe these rules and proposed amendments provide smaller companies with innovative ways to raise capital and give investors the protections they need.â€
Regulation Crowdfunding
As required by the JOBS Act, some key points from Regulation Crowdfunding include the following:
- An issuer is permitted to raise up to $1 million in any 12-month period.
- Over a 12-month period, individual investors are permitted to invest within the following limits:
- if either their annual income or net worth is less than $100,000, then the greater of $2,000 or 5% of the lesser of annual income or net worth; or
- if both annual income and net worth are equal to or more than $100,000, an individual may invest 10% of the lesser of annual income or net worth.
- During the 12-month period, the aggregate amount of securities sold to an investor through all crowdfunding offerings may not exceed $100,000.
- Issuers conducting a crowdfunding offering must provide certain information to investors, file it with the SEC and post it in the crowdfunding portal. This information includes the price of the securities, the financial condition of the company, use of proceeds, management details, identity of large shareholders, and related party transactions. Crowdfunding companies must also provide financial statements.
- Crowdfunding transactions must take place through an SEC-registered intermediary, either a broker-dealer or a funding portal.
Securities purchased in a crowdfunding transaction can generally be resold after being held for one year.
If you have any further questions regarding this please feel free to contact us.
Best regards,
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