After an extended period of deliberation, on October 30, 2015, the Securities and Exchange Commission adopted final rules to permit companies to offer and sell securities through crowdfunding (“Crowdfunding Rules”). After a public comment period, these Crowdfunding Rules are expected to be effective in mid-2016.
Any company raising money under these Crowdfunding Rules must do so only through an intermediary registered with the Securities and Exchange Commission. The forms enabling these intermediaries, sometimes referred to as funding portals or platforms, will be effective January 29, 2016. These intermediaries between the crowdfunding investing public and the companies raising capital will need to register with the Securities and Exchange Commission prior to raising any money under the Crowdfunding Rules. The Crowdfunding Rules require these intermediaries to, among other things, provide educational materials, take measures to reduce the risk of fraud, provide disclosure and to comply with the offering requirements.
Some important features of the new Crowdfunding Rules include: (1) companies may raise up to $1 million in a 12-month period; (2) an individual investor may invest a maximum of $100,000 in a 12-month period; (3) if an investor’s annual income or net worth is less than $100,000, he or she may invest the greater of $2,000 or five percent of the lesser of annual income or net worth; (4) securities purchased in a crowdfunding transaction cannot be resold for a year; and (5) there are eligibility standards for the company raising the capital; for example, companies with no specific business plan or have indicated that their business plan is to merge with an unidentified company may not use the Crowdfunding Rules.
In addition, the Crowdfunding Rules contain detailed disclosure requirements. This includes how the price of the securities was determined, the company’s financial condition, the use of proceeds from the offering and information about the officers, directors and significant shareholders.
There are several other provisions and requirements to consider and the attorneys at Titus Brueckner & Levine can assist clients to effectively utilize the Crowdfunding Rules. If you have any questions about these Crowdfunding Rules or generally about the laws concerning raising capital, please contact Jon Titus at 480-483-9600 or jtitus@tbl-law.com.
